Financing the beast

It’s my first full day at the COP after arriving here on a 13 hour journey yesterday. Although a little jet-lagged and sleep deprived, I’ve started to get into the swing of things here. The conversations range from the fascinating to the frustrating, but the sheer level of energy is electrifying!

The first session I attended today was on a UNEP FI sponsored side event on “Financing the Battle – Scaling up private sector investment through public mechanisms”

The costs of coping with climate change run into trillions of dollars. It is well acknowledged and public funds will not suffice and that the private sector will have to be involved. This panel featured members from the Korean, German and Mexican delegates, Climate Change Capital and HSBC. It is the only side event I have seen so far with representation from the private sector. The lack of private business participation in the COP so far has been quite stark. If so much money is needed and the private sector is the most efficient operator of capital, then why isn’t the private sector involved?

In an unprecedented move 191 Financial Institutions have signed the 2009 Investor Statement on Climate Change, representing 13 Trillion US dollars! This is no insignificant pot of money . The questions at the top of my mind are –

What is the appropriate framework for the involvement of public and private capital in addressing climate change?

Is this a continuum , that begins with the public sector, multilateral agencies, aid and then moves to angel capita, venture and private equity?

I have paraphrased some of the comments made by the panelists and attendees are below –

A member of the African delegation pointed out that while CDM projects are good in attracting private finance, they largely ignore the LDC countries. To which the Korean delegate responded  that the reason why is because Africa’s per carbon consumption is so low that there are very few carbon projects to be had in the first place. The CDM mechanism cannot be all things to all people, added James Cameroon from Climate Change Capital.

Another interesting comment made by Climate Change Capital representative; ” The reason that CERs work so well for the private sector is that they are a true international currency. They allow investors to invest in a foreign country without worrying about the risk of collecting from the local consumers.” ..”Private sector investors are only concerned with relative value…they do not make judegements of what ought to be..”

Korean Delegate, obviously frustrated with the negotiations process today exclaimed – ‘there are some people who want to block the process with their political and ideological views…”

A final comment from the Mexican delegate ended the session quite aptly – “Markets are made by governments. We have to careful how we create the rules.”

Written by AMRITA.

3 thoughts on “Financing the beast

  1. Matthew Trantham

    Thanks for writing this, but I’m a little confused.

    I don’t understand how the private sector is involved. Where is the money coming from, and why would business help now when they haven’t in the past?

    Also, I’m no expert so did I get these acronyms right?

    CER – Certified Emission Reduction?
    LDC – Least developed countries?
    CDM – Clean development mechanism?

    Like

    1. Amrita

      Hi Matthew:

      Here’s a quick response before I head into another session – I’d be happy to discuss this with you further in due course.

      In short, trillions of dollars are required to finance mitigation and adaptation efforts. There is general recognition from all parties that private funds will be required and is desired. The real question is how this is enabled and how it is channeled to the appropriate causes. For instance, I believe that private money is more effective an incubating technologies and bringing things to scale. This is what business is most effective at doing.

      Two, the money is coming from large Financial Institutions, Private Equity, Venture Capital and Big business.

      The reason they want to be involved is one, they are facing huge climate risks that they have not acknowledged until now and they need to hedge their exposure to oil and climate shocks. ONe way they can do this is to diversify their exposure. Secondly, there is huge pressure on them from their customers and external constituencies and they realize that they have no option but ot be part of the solution. The more far-sighted ones are approaching this as an opportunity as opposed to a regulatory obligation.

      Cheers
      Amrita

      Like

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