Money doesn’t grow on trees

With global warming and climate change – and the damage wreaked by both – in the headlines nearly daily, the importance of every sector committing to reducing carbon emissions is non-negotiable.

In the finance industry, the measures taken to support ‘mitigation and adaption actions that will address climate change’ are known as ‘climate finance’.

Climate finance is when money from public and private sources, nationally and internationally, is used to fight climate change. It includes investments in low-carbon and climate-resilient developments, sustainable infrastructure, clean technology, energy access, renewable energy (including wind, solar and hydro), biodiversity and more.

Mark Jordan, Skillnet Ireland’s chief technologist explains: “This finance is typically invested . . . in large-scale initiatives supporting both developed and developing countries in countering climate disruption, or addressing challenges around emissions and the damage caused by greenhouse gases.”

International efforts

As a global problem, there are global initiatives to create climate funds to assist in these endeavours.

Siobhán Carlin, partner, banking and finance, William Fry, says: “Investment by multilateral climate funds has to date led the way in climate finance. The Green Climate Fund (established by parties at the UN Climate Change Conference in 2016) is currently one of the largest.

“The EU and its Member States (including Ireland) and the European Investment Bank are together the biggest contributor of public climate finance to developing countries, providing €23.2 billion in 2019, according to recent reports from the European Commission.”

A private problem as well as public

However, Carlin continues, there is a growing realisation that public climate finance is insufficient, and current climate action targets will not be met without private capital.

Potential sources of private climate finance include commercial banks, investment funds, pension funds, insurance companies and sovereign wealth funds.

“The focus for the private sector will be different to that of the public sector and multilateral funds, as any potential projects will have to present a sufficient return on investment. The private sector is likely to invest in large infrastructure projects which have guaranteed revenue streams and support for debt repayments from national governments,” Carlin adds.

Narrowing the gap

There is a recognition by The United Nations Framework Convention on Climate Change (UNFCCC) that the capacity of developing countries to adapt to and prevent climate change is vastly different to that of developed countries. The UNFCCC, the Kyoto Protocol and the Paris Agreement all call for parties with more financial resources to assist those with less.

One way to help low- and middle-income countries take meaningful steps toward climate action is ‘green debt swaps’.

“A green debt swap is intended to allow the respective creditor and debtor countries to agree a repayment plan whereby repayment amounts are bought back in the local currency of the debtor and used towards mitigating and adapting towards climate change, for example development of renewable energy or investment in sustainable forestry,” Carlin says.

Ireland’s commitment to climate support

In recent years, there has been very positive action in Ireland and a strong commitment to climate action by both the public and private sector to investing in projects focusing on the transition to a low-carbon and climate-resilient society, according to Carlin, with the Government of Ireland providing just over €90 million in 2019 in international financial support for climate action measures.

The majority went towards climate adaptation measures, representing a year-on-year increase in such funding since 2015.

She continues: “This commitment to climate finance is further evidenced by the Ireland Strategic Investment Fund’s recently-announced target of one €1 billion investment in climate action projects over the next five years and the Irish Government’s commitment to at least doubling by 2030 the percentage of official development assistance spent on supporting developing countries in countering climate disruption.

“As climate change continues to become a growingly pressing area of concern, we are likely to see the practical impact of climate finance more and more.”