When it comes to climate and sustainable finance, what is hype and what is a genuine milestone?
London Climate Week is now underway, and while it is definitely praiseworthy that such a high-profile, week-long event is being hosted in one of the world’s major cities and financial hubs, the outcomes will determine whether it is remembered as a landmark for climate action or, perhaps more realistically, one for mainstream appeal of climate finance — still a positive development overall, but not quite game-changing.
Similarly, the celebrated release of the EU’s long-awaited taxonomy for sustainable activities in June 2019, while a hugely welcome development to bring much-needed harmonisation in nomenclature and help prevent “greenwashing“, will probably not in and of itself alleviate the major underlying problem with sustainable activities, which is the dearth of “real world” high-impact projects to invest in, especially in the Global South.
Nonetheless, it is worth taking a sanguine look at this development as well, as it will contribute to the process of greening and re-fitting for purpose the architecture of global finance — and that would indeed be a major milestone.
As far as milestones go, I would place higher odds on the 2019 being remembered as the year when Extinction Rebellion, Greta Thunberg and young people wrested the climate agenda away from the outgoing generation of leaders and forced “net zero” policies onto the agenda with greater urgency.
However, another recent development, much less hyped than London Climate Week and less reported on than the release of the EU taxonomy because, if at all possible, even more wonky, has the potential to significantly contribute to the realisation of other major milestones — in this case, the Addis Ababa Action Agenda and the Paris Agreement –, and that development is: the impetus in national and international policy circles for improved policy coherence in achieving climate action and the UN SDGs.
Although this development is not as directly linked to global finance as the EU taxonomy work, its potential to align private sector activity with sustainable development goals and climate action could prove to be far greater.
The great green realignment
Governments at all levels increasingly recognise the need to break out of institutional and policy silos to fully realise the benefits of synergistic actions across the SDGs, to effectively manage trade-offs between sectors, and to anticipate and address the transboundary and long-term impacts of their policies.OECD, online public consultation of the draft Recommendation on Policy Coherence for Sustainable Development
The OECD has recently closed a public consultation for its draft recommendations on policy coherence for sustainable development, an initiative that the OECD links to SDG 17 (“Partnerships”), and more specifically SDG 17.14: “Enhance policy coherence for sustainable development”
In a similar vein, the Overseas Development Institute published in April 2019 a research report in favour of what it describes as “risk-informed development” across policy goals, calling for harmonising the holistic risk assessments across interrelated policy interventions, taking into account multiple threats and risks.
Rather than coherence, what is really at work could be more accurately described as a realignment: a great green realignment of global and national policy action towards effectiveness in climate action and achieving the SDGs; a realignment cutting across ministries, agencies, government levels and policy institutions.
These growing calls echo those being directed at the architecture of the world economy and of global finance; calls that are coming from not just capitalism-skeptics but from business and government elites themselves, as well as from civil society: an acknowledgement that these global systems are currently unfit for purpose if climate action and achieving the SDGs truly are the number one policy priorities.
The emerging foundation upon which international and national policies are demanded to be more closely realigned is so far based on the three major UN-sponsored international agreements: the 2030 Action Agenda for Sustainable Development, the Paris agreement to limit global warming to 2.5 degrees, and the Sendai Framework for Disaster Risk Reduction 2015-2030. When specifically looking at city-focused action, resulting policies are expected to be more noticeably aligned with the UN Habitat’s New Urban Agenda (Habitat III).
This time, it’s different?
I’ve never lived in a stable climate in my life and probably never will.Spokesperson from “Extinction Rebellion Youth”, on a panel during London Climate Week, 1 July 2019
To be clear-eyed about this, the idea of greater cross-disciplinary policy coherence for development intervention effectiveness is far from being a new one, so it is probably too early to make pronouncements on the significance of these calls for green realignment.
However, there are at least two reasons why the odds for transformative action resulting from greater SDG and climate-led policy coherence are higher than they have ever been.
First of all, unlike development and poverty alleviation, the topic of climate is one that not only affects populations in the least-developed countries (though they will in all likelihood be hit the hardest), whose realities can be hard to relate to for people in the West, but is one with global visibility. Swelling and indeed more aggressive mobilisation against the status quo, in particular from young people, means that, unlike before, there will now be not just a financial but a political cost to be paid by governments, including in the West, for inaction, either real or perceived.
Secondly, the terms of the debate on policy coherence are no longer confined to rarefied policy circles but have been given unprecedented accessibility: the UN SDGs and the language of sustainability are now part of the common vernacular within not just the public sector, but the private sector; research and academia; and, most importantly, ordinary citizens. The topic’s accessibility is further diffused thanks to the internet’s ever-growing reach. Again, unlike when speaking about policy intervention for poverty alleviation, the problem of climate is being universally owned.
Catching the wave
The great green realignment may very well provide a stimulating backdrop for new inclusive financing partnerships to finally gain greater attention and traction.
Indeed, the resulting deconstruction of policy intervention impacts (e.g. climate action, education, disaster relief, access to water, etc.) and the focus on better considering their interrelated nature would appear to be strongly aligned with the purpose of the new value capture-based financing frameworks that are arising of late and which, similarly, begin with a holistic assessment of impacts and risks, and encourage silo-breaking partnership patterns.
During London Climate Week, I had the opportunity to speak with Conservation International about their innovative Restoration Insurance Service Company for Coastal Risk Reduction (RISCO), a groundbreaking partnership which aims to use nature-based climate adaptation (in this case, mangroves) to monetise (i.e. capture) insurance premium savings from improved resilience and from the resulting carbon credits. These kind of partnerships look at projects as a system of impacts to be internalised.
Taken together, the maturity of the sustainable finance industry, the emergence of new financing and business model frameworks founded on system-based value capture, and a policy backdrop gearing towards more holistic approaches are signalling the opening of a window of opportunity for more serious consideration for innovative partnerships founded on capturing clusters of impacts and their monetisation.
While some important lessons still need to be learned for the more experimental partnerships, namely with respect to governance, the promising context certainly invites investing in a carefully-aligned business development effort and partnership strategy to operationalise and scale these multidisciplinary approaches, consistent with realigned public policies.
For the purpose of private sector mobilisation, catching this wave of policy realignment may well be worth the prize: given the urgency and dwindling timeframe to address the climate challenge along with the realisation of the SDGs, it is almost time to “sink or swim”.