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Tough Economic Times Ahead May just Kickstart Climate Investment Enablers
 Tough Economic Times Ahead May just Kickstart Climate Investment Enablers 444 246 Global Climate Finance Accelerator

In my part of the world, my long-awaited Christmas snowfall happened this past weekend, before we return to work in earnest, leaving a glittering powder of white over the twinkling lights of my neighbourhood. That first morning walk in the snow’s quiet stillness leaves me cleansed and energized for the year ahead. As long as it arrives some time over what is for me a two-week Christmas and New Year holiday, I head back into the working world filled with optimism and hope. 

We’ll need them both. The 2024 working world will be a tough one. Deloitte’s economic outlook report paints a gloomy picture for Canada. While the firm was more optimistic about the US economy, it did note that climate change continues to pose a long term challenge due to increased costs and an as yet unrealized need to invest in solutions.

It’s these very types of economic environments, however, that create exciting potential for change. Necessity as the mother of invention has been demonstrated time and again through innovations born in periods of recession. Low demand for products, services, and employees, combined with high levels of available talent collaborating on new ways to apply their skills breed creative disruption. Today, as Plato tells us in the Republic, “our need will be the real creator”.

The first economic depression, triggered by the “Panic of 1873” brought us both the light bulb and telephone. The electric guitar, FM Radio, and the photocopier were created during the 1930s. The less glamorous but game-changing barcode, which enables us to track inventory and therefore reduce costs, was launched in 1974, a year after the start of the 1970s recession. The ongoing development of personal computers also took place during this decade of soft economic conditions following the launch of the first of its kind in 1971. And the Great Recession, resulting from the financial crisis of 2008, preceded the launch in 2009 and 2010 of economic disruptors Airbnb and Uber along with social networking and communications platforms WhatsApp, Instagram, and Pinterest.

Coalescing thought leadership indicates that the much-needed disrupters coming out of this next recession will be to the political and economic systems themselves. The energy transition will be the most radical economic transformation since the industrial revolution. It will take more than technological innovation to get there as evidenced by the plight of mature technologies struggling to survive in the face of increasing interest rates, razor thin margins, and  “warring regulators” that “have shaken investors’ faith in Canada, sent one company into bankruptcy and imperilled the massive green-power potential….” Today’s global legislative frameworks and financing architecture are not yet conducive to accelerating capital flows into climate solutions. 

Over the past four months, the Accelerating Climate Finance inaugural cohort of graduate students from business, finance, environment, policy, and engineering at the University of Toronto has evaluated and proposed solutions in five broad categories to address weak points in the capital investment system. The results of this work, to be released in early 2024, focus on five priority areas.

1.     Legislative barriers that stall climate-aligned projects including renewable energy generation in Ontario and transmission in California.

2.     Delayed reallocation of revenues through functional carbon markets or, where these fail, more direct mechanisms to support mature climate-aligned technologies still struggling with razor-thin margins and dwindling access to capital.

3.     Uncoordinated, complex, and delayed access to concessional capital and risk-sharing structures.

4.     Technically feasible but economically unviable industrial decarbonization solutions.

5.     Non-income generating climate risk reduction through investment in adaptation.

​As our traditional economy sputters and stalls, we face a unique opportunity to create a new one, the one we’ve been envisioning in every global Conference of the Parties session since Paris. Successfully redirecting the flow of capital to the low carbon economy will create a softer landing in these challenging economic times for us all.

Susan McGeachie is Co-founder and Managing Partner at Global Climate Finance Accelerator, which convenes partnerships across business, finance, and government on strategies, policies, procedures, and tools to finance climate solutions.

Accelerating to Net Zero
 Accelerating to Net Zero 150 150 Global Climate Finance Accelerator

The IPCC’s March 2023 AR6 Synthesis Report estimates that global GHG emissions in 2030, based on Nationally Determined Contributions (NDCs), make it likely that warming will exceed 1.5°C during the 21st century. The IPCC concludes that all global modelled pathways to limit warming to even 2°C require immediate GHG reductions in every sector this decade and the choices and actions implemented over the next seven years will have impacts for thousands of years out. Our window of opportunity, which the IPCC sees rapidly closing, requires urgent improvements in access to financial resources, inclusive governance, and coordinated government policies.

The good news is there is a flurry of activity around climate solutions. The Climate Policy Initiative (CPI) estimates that public and private climate finance has almost doubled between 2011 and 2020. Financial Institutions are offering innovative financing solutions to advance climate action. A handful of the many examples include BMO’s first of its kind financing opportunity for building retrofits, Morgan Stanley’s 1GT climate private equity strategy, and the innovative Symbiotics Group, which connects international investors with companies’ clean energy solutions among other sustainable investments. 

The IEA’s 2023 energy technology perspectives report shows that, for every USD 1 spent on fossil fuels today, USD 1.7 is now spent on clean energy, compared to a 1:1 ratio five years ago. The report estimates USD 1.7 trillion will be invested in clean energy in 2023, including renewable power, nuclear, grids, storage, low-emissions fuels, efficiency improvements, and end-use renewables and electrification, with electrification as the primary investment driver.

The bad news is that it’s still not enough. Achieving national climate objectives will require investment in climate solutions to increase at least seven times current levels by the end of this decade, according to CPI. Irena estimates an investment need of USD 35 trillion by 2030 to realize a 1.5°C-aligned energy transition.

One underpinning premise of the book Just Start: Take Action, Embrace Uncertainty, Create the Future is that your job, and even your industry, may disappear and, if we don’t accept this premise, we’re likely to take only half-hearted steps, if any at all, to prepare for the future. Those steps will not be able to lead us to a successful outcome in a world so fundamentally altered. In its 2019 Climate Issue, the Economist wrote that achieving a low carbon transition will require a complete overhaul of the global economy. We can’t undertake an overhaul with incremental change; we need a series of step changes to eliminate emissions from every part of the economy.

The Global Climate Finance Accelerator was created to help be that step change through partnerships and collaboration. By leveraging the expertise of finance, engineering, science, and policy through robust research initiatives, in particular the University of Toronto’s Climate Positive Energy, we strive to accelerate techno-economic analysis and creative financing solutions to advance scientifically aligned and technically viable climate projects, and contribute to the development of tomorrow’s leaders with the interdisciplinary skills required to transform to an equitable, net-zero economy.

Susan McGeachie is Co-founder and Managing Partner at Global Climate Finance Accelerator, which convenes partnerships across business, finance, and government on strategies, policies, procedures, and tools to finance climate solutions.

Financing the SDGs
 Financing the SDGs 150 150 Global Climate Finance Accelerator

This is the last chance decade to realize the Sustainable Development Goals (SDGs) that were adopted by world leaders at the 2015 UN Summit. At the United Nations High Level Political Forum (UN HLPF) on Sustainable Development last month however, it was abundantly clear that the private sector is missing from the table. If we have any hope of achieving the SDGs, all stakeholders must work in collaboration and business needs a front seat at the international fora where pathways forward are being created. 

Globally, there are trillions of dollars that can be invested by the private sector into either their own initiatives as they transition into more sustainable products and practices or provided to micro, small and medium sized enterprises (MSMEs). The latter of which are the leading source of economic growth and jobs worldwide. They also tend to provide innovative solutions to complex problems because they are nimble, hyper focused and with the technical advancement that was thrust upon them during COVID, their ability to reach consumers all over the world has exploded. What they are lacking is funding. 

While an important part of the solution, financial institutions are not the only source of financing for these companies. We need to get more creative about the sources of capital and the forms in which they come. In addition to government grants, there are myriad investment groups that focus on sustainable finance projects. Most asset managers have investment arms that include private equity and alternative investments. There are small boutique investment banks, venture capital funds, private equity firms, as well as corporate investment divisions, to name just a few. The hurdle to overcome is the investment timeline. Patient capital is required for sustainable investments which have longer-term time horizons. 

The regulatory landscape is likewise not conducive to global private sector collaboration or innovative advancement. When there are over 30 taxonomies from countries and regions around the world, with different regulatory frameworks, how can a business decipher, much less choose, which to apply to their multi-jurisdictional enterprise? While national circumstances are important, governments need to come together to work in concert to provide uniform regulatory policy to incentivize business formation, growth and where needed, transition to climate friendly processes, products and even new industries. 
​
As heard in a side event to the UN HLPF, the SDGs were not written for the private sector. Yet the expectation that private markets will drive their success is high. But without closer collaboration between governments, the private sector and civil society, the result will be, well…as expected.