“Be part of the solution, not pollution” read one of the banners of the 15,000 British students that walked out of schools in February to call on governments globally to declare a climate emergency. They joined the #Fridays4Future protest that has involved students from more than nine countries as far apart as Australia, Germany, Thailand and Uganda.
Can finance meet this challenge to be part of the solution and not pollution? I believe it can.
The International Energy Agency estimates that USD53 trillion is needed to achieve the Paris Agreement and keep global warming below 2 degrees. A separate analysis suggests that USD5-7 trillion is required to meet the United Nations Sustainable Development Goals by 2030 and while advanced economies are close to meeting these requirements, there is a funding gap of around USD2.5 trillion in emerging and developing countries, with USD1.3 trillion of that in Africa alone.
Impact investing is on the up – but more is needed
There are encouraging signs that private finance is responding. Already one in four of every dollar invested globally takes into consideration some form of environmental, social or governance filter. This ’responsible’ kind of investment is growing at 12 per cent per annum in Europe, according to Global Sustainable Investment Alliance, far outstripping the 3 percent annual growth of conventional investment.
We have also seen the development of new products like green bonds or green loans channeling capital into climate related projects. From the very first climate bond just over 10 years ago, green bond issuances reached a record USD167 billion in 2018, according to Climate Bond Initiative.
However, much more needs to be done. While we can point to some progress around ‘green’ finance issues on land much less progress has been made on other climate related issues. Take the ocean. It absorbs 25 percent of all CO2 emissions and it generates 50 percent of the world’s oxygen. Yet the ocean and coastal areas face a worrying set of environmental threats, whether from climate change, rising sea levels, or over-exploitation and pollution.
The global cost of rising sea levels is estimated to be USD14 trillion per year by 2100, according to the UK National Oceanographic Centre, and many of the threats are concentrated in Asia, Africa and the Middle East. China is likely to face costs running into the hundreds of billions of dollars while higher sea levels present an existential threat to small island nations in the Pacific and Indian oceans. For countries like Kuwait and the UAE, the threat could impact up to 24 percent and 9 percent of their GDP, respectively.
Africa is also vulnerable with at least 19 coastal cities, with a population of more than 1 million at risk. Some coastal communities in Sub-Saharan Africa are already being washed away, with some locations losing up to 30 meters of land each year.
Blue Bonds For A Blue Economy
To combat these threats to the oceans and communities, we must learn from the success of green finance and capitalize on the growing awareness among the public and investors to catalyze ‘blue’ and other sustainable financing. I believe a collective effort is needed around three ‘Ps’ – partnerships, platforms and products.
Creating a sustainable blue economy requires collaboration across the public and private sector. Both sides have key roles to play in creating sustainable finance solutions. The public sector is best placed to ensure a good regulatory and business environment and to help tackle risks that are difficult to quantify or forecast; while the private sector can often bring additional financing capacity, technology and implementation expertise. Solutions such as blended finance – when public money is used to spur private investment into sustainable projects – can and must play an important role.
About Daniel Hanna
Based in London, Daniel Hanna advises governments, state owned enterprises (SOE’s) and development finance institutions on their credit ratings, raising equity and debt, restructuring their business activities and investing in emerging markets with Standard Chartered. He is also responsible for the Bank’s Environmental and Social Risk Management team, as well as the bank-wide Sustainable Finance strategy, developing new products and solutions, further incorporating environmental, social and governance considerations into banking decisions, and identifying sustainable finance opportunities for clients. Daniel is a member of the Sustainable Development Investment Partnership and the City of London Sustainable Development Capital Initiative steering groups. He also established and ran the UK India CEO Forum under the sponsorship of Prime Ministers David Cameron and Manmohan Singh, and previously worked as a visiting Fellow for Chatham House and the President of the European Parliament. He has a Masters in Business Administration from London Business School, a Certificate d’Etudes European from Science Po Strasbourg and a BA in economics and politics from Exeter University.
