Episode Transcript
Jane: Nigel, welcome. And thank you for joining us on Net Zero Conversations. So Nigel, you are the High- Level Climate Action Champion of the United Nations. Can you tell us a bit about what that means in practice?
Nigel: Yeah, it's a long title. Well, it's a role that was created as part of the Paris Agreement. So you remember, Paris was the real breakthrough when we really agreed the north star of getting to zero and mechanism for ratcheting ambition. But what the 196 countries who agreed the Paris Agreement also recognized was that national governments can't do this on their own, we need to mobilize the whole of society. So they created this role to work with non-state actors, so finance, private business, cities, states and regions, who all have resources and sometimes rule-making powers or innovation capability, that implementation capability. And so the idea is to work with all of those onset actors to drive ambition and action in support of the Paris Agreement's three pillars, getting to zero, building a resilient future, and mobilizing the finance to do that.
Jane: So talking about finance then, what's the role, in your view, of the finance sector to really help
governments get this transition going?
Nigel: Well, we know that we need about another $2 trillion a year, that's just in emerging market, it's about $3.5 trillion globally, by 2030, to invest in the zero carbon future, which of course is a much better and bigger economy, about $25 trillion, bigger by 2050. But national governments, again, can't do it on their own. About 70% of that will need to be private finance. So private finance needs to be, I mean, I would say, again, an innovation partner in driving that finance, not just an execution partner. Because some of that investment is in areas that we haven't invested a lot in in the past, investing in adaptation, which has a different kind of cash flow profile, investing in emerging markets, which haven't been major investment destinations before. So it's both the delivery of the capital, but it's also the intellect to help design solutions, which use limited government capital, both locally and multilaterally, to create the conditions to crowd in a lot more private finance to solve the problem.
Jane: And so COP26 was termed the finance COP. What progress have you seen since COP26?
Nigel: Well, I guess it was called the finance COP maybe because of the launch of the Glasgow Financial Alliance for Net Zero, which mark and I launched in April last year. And we brought together to do that the Race to Zero, which we launched the year before to create a robust platform for mobilizing economic actors to get to zero. And we used that robust entry criteria of a credible commitment as the entry criteria for GFANZ. And then GFANZ, of course, collaborates over a lot more than just those. But most of the GFANZ members, the 450 plus who we had by Glasgow, only joined between our launch in April and Glasgow. So the number one thing we need to see from GFANZ members is fulfilling their Race to Zero commitment, to actually then publish their plans that are in line with the science of getting to zero by 2050, that represent a fair share of having emissions by 2030, and the plans to get there sector by sector.
Nigel: And of course, the shape of those differs whether they're an asset manager or an asset owner, a bank or insurer. But that's the main thing we need to see. And that, I'd say for the individual members, is the main bit of work that's been going on, turning the headline commitment into an actual plan. And then of course at GFANZ, we've been putting the team together, which I think we've stood up pretty quickly since the Gottman, and been working on quite strong agenda of implementing plans, advocating for the kind of changes needed in multilateral finance to do more of what Mark calls carbon leverage, to get more climate finance out of a pound or a dollar of multilateral or bilateral public money, so that we get more private money in. And in particular to focus on how do we mobilize the capital needed in emerging markets, which is one of our big challenges.
Jane: And that's what I wanted to pick up on really, in terms of, how, in real terms, can we attract private investment into markets, into areas or technologies that perhaps historically haven't really attracted that type of interest, because for whatever reason, it might not be seen as an attractive investment? How do we overcome that barrier?
Nigel: I think there's multiple things that need to change. Of course, so it depends on what the sector we're talking about investing in, and what the geography. So we need multilateral finance, which is limited, to be more focused on leveraging it in private finance rather than crowding it out. But we also need private finance to go exploring in countries where maybe it's written off for 10 years or 20 years or 30 years because we know that an awful lot of infrastructure investment in the world that's going to be needed to get to, well, that's going to happen anyway, and that will need to be done in a net zero compliant way if we're going to get to net zero [inaudible 00:05:09], is going to happen in emerging markets. So if international private finance doesn't go in there, we'll have a lot of bad infrastructure built, which is going to exacerbate.
Nigel: I mean, there's a few things that needs to change. The way that the limited amount of public money, multilateral finance is deployed, needs to be more focused on leveraging in private finance, what Mark calls carbon leverage, rather than just deployment. So we need to stop hearing about how much money the World Bank is deploying, and more talking about how much they're and bringing in all together. So instead of getting a one-to-one leverage ratio, you're getting one to three. And a lot of that will be about using that money to both de-risk. So de-risk some of the things which may be increased across the capital, like currency risk or policy risk, but also to help create the capabilities needed to turn a project pipeline into an investible pipeline. And so some of the things that we're working on, as the GFANZ community right now, are on some of these specific country platforms. And in fact, I've just had several conversations here today with bankers and ministers about the difference between a project plan for an energy transition and an investible pipeline.
Nigel: And that needs some investment banking skills, and as well as some perhaps asset owner requirements, to make sure that what maybe you've technically a very competent plan, turns into an investible plan. I mean, one of the things that comes to mind for me is some of the big pension funds saying that unless the ticket size is several hundred million, because they've got such big pools of capital to deploy, they won't enter the game. And so if you present a $10, $50 million projects and their minimum ticket size is $200 million, well, thank you, but it just doesn't meet my minimum criteria, even in terms of ticket size. So if they're not involved in the design.
Jane: Yeah.
Nigel: So I think it's smarter use of limited multilateral capital, it's building capacity, but it's also about bringing financial actors who've not perhaps invested in Africa into Africa to learn that maybe actually the risk is maybe lower than they thought. I mean, the risk is always higher for something that you don't actually know about. Because it's kind of like Egypt or Nigeria or Kenya, who are actually quite sophisticated and a long way along their transition planning, and already attracting significant amounts of investment, but need a bigger pool of capital to draw. So I think it's also about educating the international financial community about the bigger opportunities and the lower risks that exist, in parts of the world they might not have played.
Jane: Yeah, absolutely. And I think we are seeing innovation in all pockets of, well, real economy sectors, as well as finance sector. And voluntary carbon markets spring to mind. Is that something that you can see as one of the ways that we can get finance flowing around the system in a more efficient way?
Nigel: I don't know about more efficient, but it's a bit more distributional in terms of Global North investing in Global South.
Jane: Yeah.
Nigel: Because of course, most of that investment will be in nature-based solutions like restoring mangroves or restoring degraded land. And most of those opportunities are in the Global South. So I think large and liquid, which will have to mean robust, with very high levels of standards on the supply and the demand side, I think are going to be a part of that architecture that allows us to deploy more private finance in emerging markets, yes.
Jane: Mm-hmm. And a final question, if I may. We are looking at COP27, in your opinion, what would be the one thing we really need to make that summit a success?
Nigel: I think the thing that we really need is a very strong sense, that is evidence from both deals, and commitments, and policy changes, that finance is starting to flow in emerging markets, that is driving development, as well as driving the Race to Zero. It's not on either or. And I think that the Egyptian government are very keen on making this all about implementation, not about new commitments. I think we still need new commitments because not everyone's got enough ambition. But the real thing we need to see is actual evidence of change on the ground in some of those vulnerable countries, that are both the most susceptible to climate risk, and have the biggest development opportunity ahead of them.
