OECD Workshop Tracks Climate Consistency of Investments
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Presentation from Research Collaborative Tracking Finance for Climate Action Workshop, 1-2 October 2019
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OECD Workshop Tracks Climate Consistency of Investments
- 1. 28 October 2019 | OECD Conference Centre | Paris Workshop: Tracking the consistency of investments and financing with climate objectives
- 2. Agenda for the day 28 October 2019 2 09:00-10:30 Session 1: Elements of tracking the climate consistency of finance and investments 10:30-10:45 Coffee break 10:45-12:30 Session 2 : Institution-level tracking and assessments 12:30-14:00 Lunch break 14:00-15:45 Session 3 : Country-level tracking and assessments 15:45-16:00 Coffee break 16:00-17:30 Session 4 : Towards international-level tracking and assessments 17:30-18:00 Wrap-up and next steps 18:00-19:00 Refreshments and networking
- 3. Session 1: Elements of tracking the climate consistency of finance and investments Simon Buckle Head of Division - Climate, Biodiversity and Water OECD Environment Directorate 28 October 2019 3
- 5. Scale and urgency of climate action 528 October 2019 Source: IPCC (2018), Special Report: Global Warming of 1.5°C - Summary for Policymakers, www.ipcc.ch/sr15/chapter/spm
- 6. • MITIGATION: Hold increase in global average temperature well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C • ADAPTATION AND RESILIENCE: Increase ability to adapt to adverse impacts of climate change and foster climate resilience and low GHG development without threatening food production; • FINANCE: Make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. Three main goals of the Paris Agreement 628 October 2019
- 7. Take action, track progress, raise ambition 728 October 2019 Source: Whitley, S., et al. (2018), "Making finance consistent with climate goals: Insights for operationalising Article 2.1c of the UNFCCC Paris Agreement", ODE/WRI/RMI/E3G, www.odi.org/publications/11253-making-finance-consistent-climate-goals-insights-operationalising-article-21c-unfccc-paris-agreement
- 8. An all-encompassing scope Beyond only tracking climate finance and action Assess the consistency of financial markets and the real economy Relevance in domestic and international contexts © World Shipping Council © efinancemanagement 828 October 2019
- 9. Tracking components and options Many different actors in investment and financing Many potential ways to assess consistency Government and regulators Companies and households Financial sector 928 October 2019 National climate objectives Taxonomies Technological development roadmaps Scenarios
- 10. Range of investment and financing activities 1028 October 2019 Government and regulators Companies and households Financial sector
- 11. Overview of actors and flows in the financial value chain Governments and regulators Financial sector Non-financial companies • Banks • Insurances • Asset Managers • Exchanges • Industry • Energy • Transport • … Investment and financing flows between and within all categories of actors… Households …influenced by the regulatory and policy framework 1128 October 2019
- 12. Key finance-related activities and challenges GOVERNMENTS/REGULATORS FINANCIAL SECTORNON-FINANCIAL SECTOR • Scale up aligned investments and address misaligned ones • Track progress to national and international objectives • Identify, assess and respond to economic opportunities • Disclose and analyse climate-related risks • Secure (sustainable) financing • Adjust investments to domestic and international trends • Avoid stranded assets • Finance new investments • Refinance existing investments • Trade on secondary markets • Policy framework • Enable consistent investments and financing • Risk analysis and stress-testing • Invest in physical assets • Directly responsible for majority of GHG emissions ACTIVITIESCHALLENGES 1228 October 2019
- 13. Orders of magnitudes 1328 October 2019 Stocks of assets Gross fixed capital formation Global climate finance Energy investments Annual flows USD 81 trillion 1.8 0.6 Source: Jachnik, R., M. Mirabile and A. Dobrinevski (2019), "Tracking finance flows towards assessing their consistency with climate objectives", OECD Environment Working Papers, No. 146, OECD Publishing, Paris, https://doi.org/10.1787/82cc3a4c-en. Gross domestic product Total financial assets Debt and equity Tangible fixed assets 20 (2018)
- 14. Range of options for consistency analyses 1428 October 2019 National climate objectives Taxonomies Technological development roadmaps Scenarios
- 15. Inputs for assessing climate consistency 28 October 2019 15 Taxonomies of economic activities Types of possible reference points Economic-environmental scenarios Other relevant quantified objectives
- 16. • Standardised classifications of activities • May have a legal character or intention, e.g.: • Draft EU taxonomy for sustainable finance • China Green taxonomy • May be for voluntary labelling, e.g.: • Climate Bonds Initiative taxonomy • CICERO shades of green Taxonomies: general principles 1628 October 2019 Source: Eurostat © pegasuslegalregister Limitations: • Evaluating conditionalities requires granular data • May not possible to define relevent threshhold or criteria for all activities • Current taxonomies often focus on climate-beneficial activities
- 17. • Based on NACE statistical framework of economic activities • Intended to inform real economy and financial investors • Currently focused on « substantial contributions » to climate mitigation • Screening criteria based on emission intensities and/or energy use (BAT or best- in class benchmarking), as well as other criteria and objectives Taxonomy example: draft EU sustainable finance 1728 October 2019
- 18. Transition pathway including sector- and technology-level • Investment volumes • Production volumes Economic-environmental scenarios • Macroeconomic assumptions • Technical emission reduction potentials and costs • Assumptions on country policies and reactions GHG emission trajectory 1828 October 2019 Physical climate modelling to assess impacts of GHG emissions on global warming, and resulting impacts on physical assets Economic modelling to describe feedbacks/interactions between economic development and GHG emissions Limitations: • Aggregate forecast, not sufficiently granular to assess individual investments • Many different trajectories possible, choice involves many assumptions
- 19. Scenario example: IEA 2° scenario • 2°C Scenario (2DS) sets decarbonisation pathway • Consistent with at least a 50% chance of limiting temperature increase to 2°C • Takes into account available technologies and emission reduction potentials • Includes macroeconomic developments (GDP growth, population growth, …) • Provides subsector-level forecasts for energy use and emissions 0 100 200 300 400 500 600 700 800 2014 2025 2030 2035 2040 2045 2050 2055 2060 Well-to-wheelemissions[MtCO2] 2DS - Transport Emissions - ASEAN Air Light road Heavy road Rail Shipping 1928 October 2019 IEA (2017), Energy Technology Perspectives 2017: Catalysing Energy Technology Transformations, IEA, Paris, https://doi.org/10.1787/energy_tech-2017-en. • IEA models alternatives: Reference Technology Scenario (RTS) and Beyond 2°C Scenario (B2DS)
- 20. • Must be time bound and specific to allow an assessment • At institution (investors/corporates/financiers) or country level • Examples: • ING bank: by end of 2025, no longer finance utilities sector that are over 5% reliant on coal fired power in their energy mix. • Siemens: climate neutral operative business by 2030 through energy efficiency, decentralised energy systems, e-mobility and the purchase of clean electricity. • Norway: all new cars sold by 2025 should be zero-emission (electric or hydrogen) Other climate-related objectives 2028 October 2019 Limitations: • Voluntary and hence not always available and comparable • Not always sufficiently specific and quantifiable
- 21. • on different levels of granularity (projects/sectors/countries) • with respect to different criteria, covering climate change mitigation and/or resilience to climate change Outputs of consistency assessment 2128 October 2019 • Inform public interventions for climate action • Quantify financial risks (physical and transition) • Plan investments and financing Consistency assessment of investments/financing Different uses by different actors Input criteria
- 23. Discussants • Nancy Saich, European Investment Bank • Louise Kessler, Vivid Economics Discussion questions • Which investment and financing activities should be tracked in priority to assess the consistency of finance with climate objectives? • How can the multitude of climate-related scenarios and objectives be incorporated into an analysis of climate consistency? Discussion 2328 October 2019
- 24. Session 2: Institution-level tracking and assessments 28 October 2019 24
- 25. Presenters • Jan Willem van Gelder, Profundo and Kaarina Kolle, World Wildlife Fund • Ivan Pavlovic, Natixis Discussant • Nicolette Bartlett, Carbon Disclosure Project 25 Agenda
- 26. Discussion questions • What are options for improving the climate-related tagging of investments and financing in corporate and financial reporting? • How do measures of climate-related risks and alignment by investors and financiers relate to assessments of consistency with climate goals and impacts? 26
- 27. Session 3: Country-level tracking and assessments 28 October 2019 27
- 28. Presenters • Alexander Dobrinevski, OECD • Tatjana Titareva and Raimonds Kašs, Latvia • Gard Lindseth, Norway • Kirsten Hovi, Norsk Hydro ASA Discussants • Ian Cochran, Institute for Climate Economics • Nathaniel Smith, United Kingdom 28 Agenda
- 29. Discussion questions • How can investment data and consistency assessments at project- or institution-level be scaled up to inform country-level analyses? • Conversely, how can national climate policy objectives be translated into assessment criteria at project, institution, or sector level? 29
- 30. Session 4: Towards international-level tracking and assessments 28 October 2019 30
- 31. Presenters • Michael Waldron, International Energy Agency • Baysa Naran, Climate Policy Initiative Discussants • Ivan Haščič, OECD • Padraig OIiver, United Nations Framework Convention on Climate Change 31 Agenda
- 32. Discussion questions • What are key data constraints that currently prevent expanding climate finance tracking to more comprehensively capture all finance flows and assess their climate consistency? • What are possible international indicators for measuring the climate consistency of different types of investment and financing activities? 32
- 33. Wrap-up and next steps 28 October 2019 33
- 34. Discussion questions • What are the practical next steps that governments, financial institutions and researchers could take respectively to improve the tracking of the climate consistency of investments and financing? • What should be the thematic focus and frequency of follow up workshops to today’s event? • Rather than based on scale, would it make sense to structure the discussion based on the perspective of financing supply (financial markets) and demand for financing (investment)? 34
- 35. 28 October 2019 | OECD Conference Centre | Paris Workshop: Tracking the consistency of investments and financing with climate objectives