Financial sector has ‘make or break role’ in averting catastrophic climate change

The need for financial systems to change to address climate issues is obvious given that just 100 companies are responsible for 70 per cent of global carbon emissions, and 86 per cent of global investments have been made in “a non-sustainable way”, a summit on climate innovation in Dublin was told on Tuesday.

Addressing the European Climate Innovation Summit at Dublin Castle, Sasja Beslik, head of group sustainable finance with Nordea in Sweden, said a greater sense of urgency and political leadership was required to address these issues.

“We know what’s unsustainable and what solutions are viable. What do we need to know? What do we need to discuss? It’s quite obvious. Yet the fundamentals of financial systems have not changed,” he said.

This year’s summit, organised by EIT Climate-KIC, Europe’s main climate innovation agency, is focusing on innovation in the global financial system needed to accelerate climate action.

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Mr Beslik said it was important not to over-complicate the response to global warming, but a new line of questioning was needed on the purpose of the financial industry and the markets economy. He noted an absence of discussion about a social contract with industry, and on tools needed to tackle climate change.

Economist Prof Mariana Mazzucato of University College London said policy-makers needed to shift focus from filling investment gaps to creating new trajectories for ambitious low-carbon innovation.

Sustainable growth

“A missions-led approach should be at the heart of efforts to align the economy with climate and sustainability goals,” she said. This meant going beyond growth rate to smart growth with the help of better innovation, sustainable growth that was “more green”, and inclusive growth mindful of those who were disadvantaged in the world.

It required going beyond fixing markets and systems failures to forging a new relationships between the public and the private sector, where co-investment was embraced and central banks were leading the way rather than being the lender of last resort.

Dr Kirsten Dunlop, CEO of EIT Climate-KIC, said the recent UN report on limiting global warming to 1.5 degrees above pre-industrial levels "should leave us in no doubt that the financial sector has a make or break role in averting catastrophic climate change".

“Divestment can get us only so far. We now need to identify 1.5-compatible solutions, and drive investment and uptake much more quickly. We need the financial system to drive structural and behavioural change.”

Dr Dunlop said the summit would surface “some of the urgently-needed frameworks, economic models and systems innovations that support the financial sector in this new mission”.

UK Green MEP Molly Scott Cato said in the transition to decarbonisation the most important requirement was clear signals to financial markets, especially as certain financial assets would lose their value, such as fossil fuels. An orderly transition was also needed to avoid a rapid collapse in fossil fuel stocks. Already it was clear that coal was first to go, and was becoming "a stranded asset".

There was also a need for balance between public and private sectors, and acknowledgement that some areas where investment was required would not make a profit; so public finance was needed.

Clean energy research

At the summit, Mission Innovation (MI) – representing 70 per cent of global GDP and 80 per cent of government investment in clean energy research – launched a new investor framework “Countdown to 100 low-carbon solutions” with the potential to reduce emissions by the equivalent of 10 million tonnes of CO2 or more by 2030.

MI is a global initiative to accelerate public and private clean energy innovation to address climate change, make clean energy affordable to consumers, and create green jobs and commercial opportunities.

“The MI framework aims to disrupt conventional thinking around green or ESG investment, shifting mindsets from risk to opportunity. We need capital to go into building the next generation of ecological industries and sustainable ways of living. Shifting mindsets is at the core of systems interventions like this that can drive behaviour change and transformation,” Dr Dunlop said.