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2017 in review


Among our most popular blogs during the past year was the series we did on the landscape of climate finance.  In the final blog of this year, we offer a brief commentary on developments, as we see them, among the various actors or groups of actors occupying the stage at the moment, in the categories in which we placed them in the landscape series.                              

Overall, we think it’s been a year of some progress, but also considerable frustration at the continued slow pace of development of the capability and understanding that’s needed at many different levels to scale up finance for the NDCs.  As we also pointed out in our piece on the Macron “OnePlanet Summit”, although there is massive enthusiasm, reflected in the scores of initiatives announced during 2017, we don’t see much co-ordination of these.  Indeed, there could be a potentially dangerous development in the de-linkage of “green finance” from the NDCs, and the creation of agendas around low-carbon transitions that aren’t grounded in the Paris agreement.

Governments (national, regional, local and cities)

The most noise has been around cities, with agents like C40 coming to the fore with considerable funding behind them. We have also seen helpful consolidation among, for example, various mayoral groupings, demonstrating that the “not invented here” syndrome doesn’t have to apply in climate finance and there is scope for the amalgamation of agendas for the common good.  The problem with making cities the focus of a lot of action, however, is that while they are a large part of both the problem and the solution, their ability to raise finance, even in developed countries, is very restricted.

Among governments, we perceive some recognition growing of the importance of the NDCs as a potential sustainable development pipeline, with linkages to other policy frameworks,  but also still considerable capacity gaps and a continuing gulf between government agencies and private finance actors.  The Climate Finance Accelerator launched in September 2017 (see here for a video explainer) was an effort to show how these gaps could be bridged.

Non-state activity in the US, where many cities and States have economies the size of countries, was given a massive fillip by the Trump decision to pull out of Paris.  In the spirit of Christmas, let’s assume that he’s a secret enthusiast for the UNFCCC and thought this was the best way he could really get everyone geed-up.

 Official bodies such as the UNFCCC, OECD

As we see it, UNFCCC has done a quiet but good job of moving the rulebook agenda forward.  Expectations over COP23 were rightly managed down, but sufficient progress seemed to be made to reasonably bank on the rulebook being agreed in 2018 as planned. It’s harder to say how things will pan out on the 2020 action agenda, where there still seems to be considerable distance between developed and developing countries on matters such as loss and damage.  On the finance for NDCs agenda, we’ve all along voiced concern that UNFCCC doesn’t have a finance capability commensurate with its negotiation and science capabilities, and this has contributed to a vacuum in leadership that’s tempting for others to fill.  And what it gets filled with, unfortunately, if often unconnected initiatives.

We don’t see other official bodies stepping up to the finance plate much either. OECD has been doing work on pipelines, but seems to have gone quiet as the school prefect on the $100 billion developing country commitment. IMF has written good things on climate risks, but has yet to find a role in climate finance itself.

Probably the biggest influence has been felt from TCFD, whose recommendations were published in the summer and which announced at the OnePlanet Summit that 237 companies with a combined market capitalization of over $6.3 trillion had signed up to report under its aegis, including over 150 financial firms responsible for assets of over $81.7 trillion.

Development finance institutions (both multilateral and bilateral)

The World Bank has instituted an Invest4Climate platform, but it doesn’t appear to have much content or sense of direction as yet. IFC and all the bilateral DFIs have announced climate-specific strands and large increases in commitments to climate finance as well as targets on adaptation finance.  The InterAmerican Development Bank probably leads the way on a programmatic approach, with its “NDC Invest” platform, but few actual engagements have yet been seen, to the best of our knowledge.

We’ve also yet to see much of the “new kids on the block”, the Asia Infrastructure Development Bank and the New Development Bank (the so-called “BRICS bank”), both based in China and both having got underway operationally this year.  It’s still unclear how they will position themselves with the Paris agenda.

Overall, there remain fundamental problems with the risk appetites and incentivisation structures of the DFIs, which are resulting in them levering in far less private capital than they should be.  Given how critical they are to the kind of blended finance that will be needed to fund the “higher hanging” fruit in the NDCs, fixing this (which only the DFI shareholders can do) would probably be No 1 on our list of “must-do’s” for 2018.

Green banks

While the biggest news of the year in terms of actual green banks was probably the sale of the UK’s Green Investment Bank to MacQuarie – a financial institution probably not best known for its green credentials – the cause of green banks in general seems to have taken several steps forward in the year. Their key role as specialised conduits for commercial private sector investment into low-carbon projects (as opposed to the wider mandate of the DFIs with both governments and the private sector, and with concessional as well as commercial finance) has come into focus.  This has largely been a result of the excellent work of the Green Bank Network, and we look forward to announcements on new green banks in 2018.  An early one might be a green bank for Asia Pacific, which has been proposed to be established in Hong Kong.

Climate Funds

These remain a chief source of frustration.  We can’t put it better than the Rocky Mountain Institute: “Dozens if not hundreds of funds and initiatives have sprouted up alongside the climate negotiations, and these all have different purposes, processes, and nodes of activity that are very difficult for their intended beneficiaries to navigate. Complication leads to inefficiency: the proliferation of institutions and initiatives has seen a large increase in resources flowing into the climate finance system, but the difficulty for recipients to navigate and access resources, combined with duplication of effort and lack of co-ordination, means that money is not flowing out of the climate finance system fast enough and is not optimized for impact and innovation. The result is mutual frustration on the part of recipients and donors (readily visible at the climate negotiations), neither of whom benefit from the slowness of translating the donor induction of resources into action on the ground…”

The worst offender, but only because it’s the largest in terms of funds available to it, is the GCF, which has approved close to $3bn of funding but disbursed less than 10% of that sum.  Mainly this slowness results from its egregiously over-complicated accreditation system, but it’s not helped by a governance system designed for anything other than the efficient movement of funds. A straw in the wind for improvement is that the GCF and the GEF, both controlled by the UNFCCC, have been asked to create what are politely termed improvements in “coherence” between their procedures during 2018.  Another Kyoto-linked body, the Adaptation Fund, was  rescued in the closing moments of  COP23 and put to the service of the Paris agreement.  Because of the importance of these funds to adaptation, we would put their reform and rationalisation down as “Must-do No 2” for 2018.  Again, the shareholders are mainly developed country governments, who need to wake up to the problem.

International capital markets

These fall into two broad categories, institutional investors and project / private equity & debt financiers.  Firms in the former category, which because of their own regulatory constraints can typically only invest in listed equities, are awoken to some degree to the needs and opportunities arising from Paris, but still largely consumed with the ESG agenda, especially the pressures to divest from fossil fuels, and in particular coal. This will probably be the continued focus of the institutional investor world for 2018, as, apart from green bonds, there’s in any case not much presently available for this market to invest in on the climate front.

Green bonds themselves continue to burgeon, with the latest estimate for 2017 issuance from market convener the Climate Bonds Initiative being some $130 billion. This is close to a 60% increase on 2016 issuance, but there are a number of caveats.  First, green bond issuance is a tiny fraction (less than 3%) of total issuance; second, the range of issuers is quite narrow; and third, some significant percentage of issuance, especially by banks, is probably refinancing debt already placed rather than being new money.  That said, many of the new issuers are in emerging markets, and emerging sovereigns like Nigeria and Fiji have recently issued bonds specifically linked to Paris implementation. Alongside stimulating issuance, CBI has been instrumental in getting quite a lot of “plumbing” installed in the green bond world, such as standards.  So here’s a great example of what can be done to shape outcomes, given focus and will.

As to project/private equity & debt finance, we believe that some players are becoming alive to the pipeline represented by the NDCs.  These include some of the main global investment banks.  “Impact investors” are active in adjacent spaces, many aligning themselves with the SDGs as asset allocation guides, where there is, of course, significant crossover with the NDCs.  This segment of the market depends, however, on significant de-risking of projects – that is, the mitigation of country, currency and technology risks among others – to get to any kind of scale, and that de-risking needs to be led by the DFIs, supported by aid agencies and philanthropy.

Domestic capital markets

Everyone agrees that this is where much of the finance for NDCs in emerging economies needs to come from, chiefly because the issue of currency risk is mitigated.  These markets are, however, significantly under-developed by comparison with the international capital markets and even where they do have some size and substance – for example in certain Latin American countries – they are restricted quite severely (and understandably so) by local regulation, which tends to be very conservative in terms of what it allows pension funds in particular to invest in.  Market education and deepening will take some years, and it’s not at all clear at the moment who, if anyone, with the funding to do this thinks it’s their job.


As the CPI’s annual “Landscape of Climate Finance” again shows for 2016, the balance sheets of companies and project developers remain by far the single largest source of finance for climate-related developments.[1]  The vast bulk of this spend is, however, in the largest and richest economies.

Companies continue to sign up for voluntary disclosure and action initiatives such as CDP and We mean Business, and we believe that the understanding of how, for example, supply chains are inextricably linked with climate is beginning to spread significantly beyond the “early adopters” who have recognised this for some years.  Such supply chain issues are also going to be at the heart of what the climate world calls “adaptation”, but the business world calls “resilience” or “business continuity,” and we suspect that extreme events that have affected many US corporations in 2017 have driven this message home to many who hadn’t “got it” before.

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Rating agencies/opinion providers

Driven by NGO advocacy and more formal pressures such as the TCFD and France’s new climate risk disclosure law, the issue of how climate exposure relates to corporate and bank creditworthiness and sustainability can only come more and more to the fore.  That will create a demand from investors for analysis and rating of these risks and, sure enough, the main rating agencies have now started to produce climate risk assessment products.

Alongside these corporate ratings, a new sub-industry is being created of green bond assessments, both at the issuance stage and ongoing.  These assessments score bonds for “green-ness”, especially in their use of proceeds, and have attracted new entrants to what is bound to be a growing market as financial instruments are “greened” beyond just the bond market, moving on to also cover “green debt” and “green equity”.


The insurance market plays a role in climate finance in two ways, as a distributor of insurance products and – via the investment of the premiums paid for those products – as a major institutional investor.  See above as regards the latter role.  On the product side, 2017 will probably turn out to have been the worst in terms of the payouts insurers have to make for some time, but costs have been rising alongside temperature for a couple of decades now, so for certain geographies and / or types of risk, there is a looming danger of “uninsurability”. At the same time, the insurance gap (that is, the gap between what’s at risk and what’s insured) has continued to grow, principally of course in the most vulnerable places.

At the more “micro” end of the market, insurance giants such as Munich Re and Willis are participating in initiatives such as the African Union-sponsored African Risk Capacity (ARC) insurance pool, which provides “parametric” insurance products[2] starting with drought cover.  COP23 also saw the launch of the Insuresilience Global Partnership, a joint venture between the G20 and the V20 (the group of vulnerable nations, of which there are actually 49).  MDBs, civil society organisations and private sector insurers have also now joined the founding state actors.  The Partnership has about $550 million of funding, which, properly targeted, could make a big difference in vulnerable communities.  The governance arrangements, though, look heart-sinkingly like those of the GCF, so let’s hope we aren’t disappointed by the pace of actual deployment.

Meantime, progress also seems to be being made on the regulatory side, where over-conservative demands could radically restrict the ability of companies to create innovative solutions. The UN has launched a set of Principles for Sustainable Insurance and regulators have got together in an International Association of Insurance Supervisors. We had a handy roundup of recent developments in a blog by Butch Bacani of UNEP (and an adviser).

Aid agencies

Germany, the UK, Holland and France appear to be still leading the way, with a potentially ground-breaking commitment during the year by France’s AFD agency to make 100% of its portfolio Paris-compliant.  We don’t perceive, however, any particularly fresh thinking on delivery of donor funding, nor any engagement with the finance community over blended finance, in which aid money could play a critical catalysing role.  The launch of a Global Centre of Excellence on Climate Adaptation, supported by the Dutch government, may be an important addition to the landscape, though it’s not yet clear exactly how this will work.


Private philanthropy is an important potential source of funding for innovation and incubation, and is relied on by most of the think-tanks that conduct advocacy and help develop policy.  As far as climate is concerned, to date most philanthropic funding seems to be directed at the institutional investment market, with the focus on driving shareholder action for engagement with major polluters/ emitters and divestment from fossil fuels, especially coal.  Given the momentum that’s now been established – and with the battle on coal now surely effectively over – we would hope to see at least some foundations adjust their strategies and think more about how they can help with the creation of investment pipeline, especially on the project side.  Although there are some instances of dialogue among philanthopists, there is also still considerable scope for them to align their agendas to make access to funding quicker and easier to achieve, and by a wider range of actors.

[1] Including the estimated spend on energy efficiency that CPI doesn’t itself include in its official measure because of stringent data rules

[2] Such policies pay out automatically when agreed parameters are met or breached, for example, inches of rainfall in a given period

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