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Green Finance: Sub-thematics - Coggle Diagram
Green Finance: Sub-thematics
Risk
Link Title
Risk awareness: Digital tools solution
AI: How can AI help Green Finance ?
Source
Explanation: Artificial intelligence (AI) allows investors to collect and analyze more information than ever before when accounting for environmental, social, and governance risks and opportunities.
AI can help sustainable investors process mountains of data that hold essential information for ESG investing.
Arabesque S-Ray: German company,
Omar Selim, CEO of the Arabesque Group
Blockchain: How can Blockchain serve sustainable finance?
Explanation: The conventional method of issuing bonds is cumbersome and requires a broker and listing agent. This increases the associated cost and is not scalable to small or medium-sized enterprises who wish to issue bonds.
By using blockchain, there’s potential to disintermediate some of the players. The report states that blockchain bonds for $10 or $1 million would have the same issuance costs. This will open up the green bond market to a broader base of investors.
Source
ALEXEY SHADRIN
Co-founder, CEO of Evercity
(Luxembourg)
Big Data: Big data: a tool to push back the boundaries of sustainable finance?
Explanation: Big Data is used to understand the most important social and environmental trends and company performance in order to be able to outperform their peers.
Source
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Patrick Wood Uribe CEO of Util
Transition Finance
How can banks foster the development of alternative financing means ?
Collaborative finance
Aggregation
Crowfunding
Are banks willing to become an intermediate between innovators and investors ?
How can banks help their clients to change BM ?
How can the Deferred acquisition costs be a key tool to support transition finance ?
OECD Report
Which "green" financial instruments can banks offer ?
Carbon offsetting marketplace
Isabelle Millat
: is in charge of coordinating market initiatives on sustainable and responsible investment across all asset classes in order to strengthen the development of the range of solutions offered to investors, capitalizing on the bank's strong expertise in financial engineering.
Source
Transition finance to support a sustainable development is key in developing countries
OECD presents a transition
toolkit
to set a framework for such help and transition
Role of the Development Assistance Committee
Loan provider - Concessional loans
Provide a constant support because eligibility criteria does not necessarily means that countries are able to handle the process
ABC framework for transition finance diagnostics
Benchmarking: What are the substitution effects between public, private, domestic and international resources as the country transitions? How does this substitution of broader flows compare with country peers undergoing similar transitions? What lessons and best practices can be drawn from other country contexts?
Counselling: How can development partners help the phasing out of ODA and secure the progressive growth of other sources of financing (e.g. private or domestic)? How to increase the effectiveness of ODA, identifying the best and most innovative tools, policies and partnerships available? How could development partners design long- term support strategies that go beyond ODA? How can development partners provide support to avoid setbacks when ODA is no longer an option? What kinds of capacity building efforts (e.g. to allow trade and investment or domestic resource mobilisation), promotion of transfers of all kinds (from private investment to technologies or knowledge) could be fostered by ODA to smooth the transition?
Assessing: What is the transition context in the country? What role are DAC members and partners playing in the transition context? How has access to financing for sustainable development been impacted by the transition?
Transition finance for developing countries trends
When countries transition --> substitution of external with domestic resources. Domestic resources are the largest source of finance for the economy so their mobilisation is therefore a key component of financing sustainable development, and should remain a primary objective of ODA
Substitution of public with private resources. Highly dependent on public external support (mainly ODA) in early stages of transition, countries progressively move towards a private financing of their economy. Even in public financing, a decline in the concessionality as countries transition.
Rodolfo Lacy
, Director for the Environment Directorate
How can stock exchanges promote and grow green finance?
Source
Explanation:
The growth of green finance depends on both promoting green finance products as well as greening mainstream financial markets. A green finance action plan has been developed by the Sustainable Stock Exchanges (SSE) Inititative to guide stock exchanges in the implementation of green finance strategies.
Appears clearly that transition finance challenges are sector specific.
Substitution of ODA with OOF happens at different stages of transitionacross sectors
OECD Report
Sustainable investment tools
Green bonds
How do green bonds contribute to sustainable development?
Explanation:
Initially green bonds were issued by supranational organizations, such as the World Bank and European Investment Bank. Nowadays, more green bonds are issued by corporations, as well as universities and governments .Green bonds can contribute in significant investments and relate to the funding of helpful green projects. Nonetheless, organizations and all nations that issue them should ensure transparency in communicating the positive outcomes of such investments, while also guarantee that they can function as an effective tool for Sustainable Development. ==> Need for transparancy and clear frameworks to prevent greenwashing
Source
- Written by
Nikos Avlonas
, CEO of Centre for sustainability and excellence (CSE)
Can green bonds save the planet by altering capital towards renewable energy projects?
Explanation
: Renewable energy is one of the most pressing use cases for green financing. However, only about 40 percent of green bond issuance in 2018 was used to fund clean energy projects. Nevertheless, the energy sector has already begun to embrace green bonds as utility companies were among the largest issuers of green bonds in 2017 and 2018. But there remains a lot of untapped potential for green bonds. At the moment, investment in sustainable energy isn’t growing fast enough to meet the demand.
Source
- Written by
Miriam Tuerk
, specialised in Clean energy (not really specialised in Green Finance)
Example
of potential: U.S. utilities have the potential to issue at least $250 to $500 billion in green bonds in order to kickstart the transition to cleaner power immediately
How is this market regulated?
Green bond principles
established by the ICMA and
EU Green Bond Standard
planned for Q1/2021
Jochen Krimphoff
is an environmental economist with more than 20 years of experience in environmental finance. Since 2018 he is a member of the Technical Expert Group on Sustainable Finance, which was mandated by the European Commission to develop an official
European Green Bond Standard.
Sustainability linked loans (SLL) and green loans
How do SLL influence borrowers' sustainable efforts along the whole loan period?
Source
Explanation
Before, a “one-way” pricing basis was used: if the borrower satisfied certain pre-determined ESG targets, a discount was applied to the margin payable on the loan.
Recently, this has been changed to “two-way” pricing structures: an improvement in ESG performance still triggers a discount to the margin on the loan, but if the borrower’s ESG performance declines (or if the company doesn't reach a target increase) then a premium is added to the margin
Also use of other KPI's besides ESG rating + use of dynamic performance targets that require ever-increasing KPI's + ...
How is this market regulated?
The Green Loan Principles
and
Sustainability Linked Loan Principles
"
The tipping point was to switch from linking loans to individual projects to evaluating the company itself. That opened the market to a broader universe of corporates which already have a sustainability strategy in place
", says
Cecile Moitry
, Director of Sustainable Finance and Investment at BNP Paribas Corporate and Institutional Banking (CIB)
Blended finance
A third-party to enter the equation of impact investing to foster it and mobilise investors more easily
How important are insurers in the value chain of green finance and impact investing ?
Will private insurers enter the value chain to enable more important and convenient impact investing ?
Principles of Sustainable Insurance
We will work together with our clients and business partners to raise awareness of environmental, social and governance issues, manage risk and develop solutions.
We will work together with governments, regulators and other key stakeholders to promote widespread action across society on environmental, social and governance issues.
We will embed in our decision-making environmental, social and governance issues relevant to our insurance business.
We will demonstrate accountability and transparency in regularly disclosing publicly our progress in implementing the Principles.
Allianz
:
Matt Christensen
, Global Head of Sustainable and Impact Investing at Allianz Global Investors
Role of public actors as a security net for private investors
IFC
provided US$85 million credit risk protection to Credit Agricole on a US$2 billion trade finance portfolio. The protection freed up regulatory capital for the bank to lend an additional US$510 million for health, education and infrastructure projects in emerging economies.
Project Finance
Advantage of diversifying the origin of the financing sources
Adressing the risk : the most people invest, the less they need to invest and the more it is safe for them
Allows to raise more funds
Problem of risks (political, financial, juridic) of developing new impacting project: Creation of SPV which allows participating companies not to be threatened by failure, presence of experts
Matter of financial viability of an impacting project --> Power Purchase Agreement represents a security for innovators because it insures sales for a large period of time (20 years for example)
PepsiCo
: The Combined Heat and Power Facility
project is in line with Pepsi Cola Products Philippines Inc. (PCPPI) program called POWERPLAY, which aims to reduce the cost of energy in the operation of its bottling plants. The 10-year build-own-operate-supply-transfer agreement signed by SURE with PCPPI for the development of the biomass cogeneration facility for Pepsi’s bottling plant in Rosario, La Union, Philippines was transferred to SUREPEP. As per the contract, SUREPEP will sell electricity and steam to Pepsi at 20% discount based on the current power utility rate and its computed cost of generating steam if it uses LSFO at current prices.
Brian Kramer:
Director, Global Sustainability
Problem of letting aside social and environmental problems because no one wants to involve their money: Means for public institutions to foster investment, to be at the origin of a call of tender which would solve a environmental or social project nobody was going to assess
Criterias & Index
Problem of choosing the best investment according to values, action
Having precise criteria of impact applied to companies and projects allows an investor to have precise and meaningful information to ensure that the project corresponds to its value and to the impact he wants to have on the environment/society.
PRI = Using the UN SDGs and the PRI Reporting Framework, this guide identifies 10 thematic impact investments
Eric Usher
: heads the UN Environment Programme Finance Initiative, UNEP FI, works as a UN advisor for the PRI
Problem of assessing that an investment has been well-used, assess the true impact of the investment.
Monitor the development of the project.
Having invested in a so-called impacting project does not ensure that the money will be used as promised and efficient. To be sure that the money was well-used but also to manage better a portfolio thanks to updated information, impact indexes are going to be essential to green finance
GIIN-IRIS+ = industry’s most accepted impact measurement framework
Grace Earle
: Senior Associate, IRIS and impact measurement & management
How can AI help ESG investing ?
AI can help sustainable investors process mountains of data that hold essential information for ESG investing.
https://www.spglobal.com/en/research-insights/articles/how-can-ai-help-esg-investing
Andrew Walsh
: S&P Dow Jones Indices
Check partnership with RobecoSam
Problem of the diversity of ratings used for the same purpose, even for the same criteria base (ESG)
OECD Report
How does a company fit into SD?
Company with mission
Mirova
Philippe Zouati, CEO of Mirova
creation of financial products that take into account environmental and social impacts (
Source
)
Lita.co
Crowd-funding platform to finance startups with a positive
impact
(environmental and social)
Éva Sadoun, Co-founder
ShareAction
We’re a charity that has spent the last 12 years building the movement for responsible investment. We’re now taking the movement worldwide, to transform the investment system and unlock its potential to be a force for good.
(
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Catherine Howarth, CEO
Candriam
David Czupryna
, Head of ESG Development Candriam France
Global multi-specialist asset manager & recognized pioneer and leader in sustainable investing (
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Extra-financial reporting
E.g: EDF
Claude Nahon (Dir. Développement Durable Groupe) et Xavier Girre (Dir. Exécutif Groupe en charge de la Direction financière)
Source
Regulation
Public Authorities
Rules
How can increasing transparancy across companies help against greenwashing?
Example: Sustainable Finance Disclosure Regulation
(SFDR)
By setting diclosure standards on the organisational, service and product levels “greenwashing” can be prevented and investors can clearly take sustainable investment decisions.
How can Green Certification Councils help against greenwashing?
Example: Sustainalytics investigates companies and provides official
ESG risk ratings
, CEO:
Michael Jantzi
Providing companies with official ESG ratings for example can be a good way to assure the sustaiinability of a company's projects and operations and minimize greenwashing.
Incentives
Taxonomy
How can a taxonomy provide understanding and guidance in green finance?
The legislation also includes a clear mandate for the Commission to start defining environmentally harmful activities. Phasing out those activities and investments is as important to achieving climate neutrality as supporting decarbonised activities. (
Source
)
The
EU taxonomy
entered into force on 12 July 2020. It establishes the framework for the EU taxonomy by setting out four overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable.
A clear definition for “Green Finance” and ascertain standards for the same are needed. This will help institutions and investors to analyse whether a project is green.
The
Platform on Sustainable Finance
plays a key role in assisting the Commission in developing its sustainable finance policies, notably the further development of the EU taxonomy
Nathan Fabian
is the Chief ResponsibleInvestment Officer at the United Nations supported Principles for Responsible Investment.. Since Octobre 2020 he is also chairman of the Expert Group on Sustainable Finance.