The estimates to critical timeline for action range from approximately 18 months to 12 years to hold global warming to 1.5 °C. Investing 1.8 trillion USD globally 2020–2030 could generate 7.1 trillion USD. Some estimates are that transitioning the world to sustainable infrastructure will require 100 trillion USD investment over the next 15 years. Ultimately the the world’s 386 USD trillion financial system needs to be transitioned. We are falling behind by the moment.
Financial infrastructure is how we channel our activity and resources and is what we need to
make the econonomic transformation to happen. The estimates to critical timeline for action
range from approximately 18 months to 12 years to hold global warming to 1.5 °C. Ultimately
the the world’s 386 USD trillion financial system needs to be transitioned. Nick Robbins
summarizes this aptly as
‘climate change triple jump’ in
his article in London School of Economics (based on IPCC special report Global Warming of 1.5 ºC) as a need to rethink
- investment strategy,
- capital intensity and
- societal impact.
The societal impact, capital intensity and investment strategies manifest most clearly in
environment where we live, work and grow our food. The Global Commission on Adaptation
commissioned a report Adapt
Now: A Global Call for Leadership on Climate Resilience stating that
can deliver high rates of return, bring multiple benefits to people and the economy
three revolutions for a better future the revolutions being:
- Revolution in understanding,
- Revolution in planning and
- Revolution in finance.
Their research finds that investing 1.8 trillion USD globally in
- natural environment,
- cities and
- disaster risk management
the net benefit of building more resilient infrastructure in low- and middle-income countries would be $4.2 trillion.Moreover, Skandinaviska Enskilda Banken (SEB) et al. estimate in UNEP comissioned raport [pdf] that transitioning the world to sustainable infrastructure will require 100 trillion USD investment over the next 15 years. The capital requirement being so large that banks alone cannot finance it. Further alignment of financial system and bond markets are needed together with removing maket barriers. These figures are for infrastructure projects only.
Some of the structural challenges are in capital adequacy managed by regulations such as Basel III, bond and securities transparency, EU Action Plan on sustainable finance and a EU Sustainable Finance Taxonomy. These require quick and accurate data collection and reporting while altogether decisions made by fiduciaries can cascade down the investment chain affecting decision-making processes, ownership practices, and ultimately, the way in which companies are managed. Conquering these structural challenges can unlock the chicken-and-egg problem that investors do not have enough verified green assets to invest on.
It has become abundantly clear there is a financial incentive and socio-economic pressure to move quickly, but:
- the current global financial infrastructure is not fit for the challenge nor it is aligned with physical reality,
- people working in financial industry need help and cooperation with subject matter experts outside finance to fulfill their fiduciary duties while also
- the projects and solutions need to be planned and brought to use quickly and inclusively to generate social buy-in and
- the projects and solutions need to be designed so they are financially feasible, bankable and investable.