Environmental, social, and governance (ESG) ratings point climate-conscious investors away from companies that are not decarbonising fast enough (or at all!). But surely they should be doing the exact opposite when it comes to climate-critical sectors like electric utilities, explain Tricia Holland, Ryan Foelske, Ella Warshauer, Jon Rea, Sarah LaMonaca and Uday Varadarajan at RMI. Of course, that presents a new challenge. The investor first needs … [Read more...]
Credit Rating Agencies: a guide to pricing in long-term climate risks
Nobody wants share, stock and bond prices to fall off a cliff unexpectedly. But while Credit Rating Agencies (CRAs) continue to evaluate based on short-term policy changes and market forces without specifically accounting for climate risks, that’s what could happen. IEEFA have published their guides to how CRAs can adapt – without throwing out – their existing models to integrate environmental, social and governance (ESG) credit risks. Hazel … [Read more...]
Renewables “cost of capital” in Europe lower than oil, gas, coal. What the U.S. and China can learn
The ultimate price of anything is highly dependent on the cost of capital needed to put it in place. That cost reflects the risks financial markets perceive. And policy certainty reduces risk. Gireesh Shrimali, Christian Wilson and Xiaoyan Zhou at Oxford University, writing for WEF, summarise their global study which shows the cost of capital for different energy technologies, and therefore which ones will trend upwards and dominate. They cover … [Read more...]
Silicon Valley Bank failed. Don’t blame the Climate Tech it backed
Silicon Valley Bank in the U.S. was a favourite for climate tech start-ups. So its recent collapse inevitably raised questions over whether those start-ups and by extension the whole climate innovation ecosystem was much more fragile than previously thought. Rushad Nanavatty, Colm Quinn and Amy Yanow Fairbanks at RMI explain why that’s not the case. Instead, it was an old-fashioned bank run caused by poor risk management, weakened regulation of … [Read more...]
Wind (and Solar) need their own Financial Transmission Rights to hedge their unique congestion risks
Financial Transmission Rights (FTRs) help generators and load-serving entities hedge congestion-related risk. Transmission congestion causes a divergence between wholesale power prices where it is generated and the trading hubs where it is delivered and sold. Because the congestion, and therefore the risk, varies over time it is particularly important to variable renewables. That uncertainty increases investor risk which potentially slows … [Read more...]
Europe needs a Regional Green Bank to fulfil its Green Deal and match the U.S.
Three years in, the European Green Deal remains unfulfilled as a long-term vision for decarbonising Europe by 2050, says Esmeralda Colombo at EIEE. To inject new momentum, in this week’s speech at the World Economic Forum in Davos, EC President Ursula von der Leyen sketched out a Green Deal Industrial Plan to subsidise the cleantech industry and compete with the rest of the world, notably the US, and the EU Sovereignty Fund to equalise the … [Read more...]
2023 lookahead for Sustainable Finance: EU Taxonomy, ESG ratings, corporate disclosure laws, Europe’s “IRA”
What will be the big issues for sustainable finance in 2023? Luca Bonaccorsi at Transport & Environment points at four. Firstly, the EU Taxonomy defines what counts as “green” investment. There has been much criticism of the inclusion of gas, and critics will continue publishing their analyses of what is truly sustainable and what is greenwash. Next, ESG ratings have also been severely criticised. They are an investor’s main tool for capital … [Read more...]
Doubling clean energy investments from “natural” redirection of existing spend on infrastructure, buildings, fossils +more
Annual investments in clean energy stand at $1.4tn, now greater than investments in fossil fuels ($1tn). But that needs to double by 2030. This steep climb will be made easier by the natural cycle of global investment, as well as the cost-benefits of abandoning fossil fuels for renewables and greater efficiencies, says Stephen Peake at The Open University. Each year, around a quarter of our GDP is anyway spent on new machinery, buildings and … [Read more...]
COP 27: “Loss & Damage” can become the fourth pillar of climate action, along with mitigation, adaptation and finance
COP27 saw two major outcomes on the finance front: the creation of a “Loss and Damage” fund and a call to reform international financial institutions. It made fewer, if any, advances to reduce emissions, and narrowly missed sending a global call to phase down oil and gas consumption. But funding the emissions reductions of developing and vulnerable nations was a gap that had to be filled, and so this is a big step forward, explains Lola Vallejo … [Read more...]
EC Consultation: ESG ratings need regulation to fix inconsistencies and bias
There are multiple problems with ESG ratings and that’s why they need to be properly regulated, says Hazel James Ilango at IEEFA. Different ratings agencies have different methodologies that are difficult to compare. They can lack transparency and be biased due to industry, geographical location or company size. As for a company’s impact on the planet and society, it can be overrated or underrated due to the aggregation of Environmental, Social … [Read more...]
Imagine it’s 2030 and net-zero is on track. How did we do it?
Imagine it’s 2030. The energy transition is on track and net-zero goals are entrenched across the global economy. How did we get there? Tim Buckley at IEEFA imagines it for us and sends us a postcard from the future. Writing in the past tense, he flags actual events and policies happening today to “remember” the major changes that took place to achieve it. Weather-related disasters compelled governments to act, recognising – apart from the … [Read more...]
Climate Finance: the loopholes that are causing greenwashing
How do you know when an investment is truly “green”? Whether companies and fund managers monitor themselves or are externally policed, the correct rules need to be identified. And then it gets harder. Clearly defining and then measuring carbon footprints is a bigger challenge, explains Meredith Fowlie at UC Berkeley’s Energy Institute at Haas. She draws parallels with food nutrition labelling rules. But whereas counting the calories in a food … [Read more...]
New rules for EU green bonds to raise €350bn/yr, but no decision on nuclear and gas
The EU needs €350bn/year from private investors to fill the Green Deal’s funding gap. The rules for the new green bonds that companies can issue to raise money are supposed to set a “gold standard”, ensure there’s no greenwashing, and make Europe the best place to invest your money sustainably. Benjamin Wehrmann at CLEW summarises the new strategy that was presented on 6th July, and has gathered reactions. Particular attention is paid to … [Read more...]
Financial incentives for Grid Modernisation: the problem with guaranteed returns on investment
Grid modernisation is going to be very expensive. What’s the best way to pay for it? The financial incentives governments put in place now will determine what investments get made, how cost-effectively it’s done, and who ultimately pays. Meredith Fowlie at UC Berkeley’s Energy Institute at Haas explains that a common method is for a government to give some sort of guaranteed return on investment for the new asset. But it’s far from ideal. … [Read more...]
EU Taxonomy: 5 principles for avoiding unintended consequences
The EU Taxonomy is a classification system that defines a list of environmentally sustainable economic activities. If your activity is on the list you should see green finance flow your way. Hence the heated debate over what is “green”. It’s of vital interest to sectors like gas and nuclear (it’s green compared to the coal it replaces) as it will have a major effect on the cost of capital and therefore the future of the sector. Indeed, any … [Read more...]
