Navigating the Climate Polycrisis

As challenges in the macroeconomic environment restrain government funding towards net-zero initiatives, industry leaders are calling for new pathways to mobilise private capital to close the financing gap.

Amid sustained challenges in the macroeconomic environment, there has been a re-ordering of priorities for most governments, especially those with stretched fiscal capabilities. At the FAST Conference this year, leaders from the public sector, financial institutions and the real economy called for new ways to mobilise private capital at scale with the limited public money available, in order to meet the nearly US$2 trillion of low-carbon investments needed annually by emerging markets and developing economies to reach net zero by 2050.

“There are over 90 intergovernmental initiatives and 160 industry cooperative initiatives globally [on climate action]… In the next stage, we need to translate these into effectiveness and traction. We need to go from ideas to pilots, pilots to playbooks, playbooks to standardisation, and then to scale,” Chia Der Jiun, Managing Director, MAS.

Crowding in private capital

The liberalisation of Southeast Asia’s energy system and innovative financing vehicles incorporating more first-loss equity could help to mobilise more private capital to close the region’s significant climate financing deficit. Mark Gallogly, Chairman of Allied Climate Partners and Co-founder and Managing Principal of Three Cairns Group suggested that more first-loss equity is needed to crowd in climate financing from fund managers. “In order for pension assets to go to these places, we are going to need to have risk reduction. We need to find ways to bring the risk levels down to something like OECD risks, otherwise you've locked out a major part of the global capital markets,” he said.

These include innovative financing vehicles which help to improve the commercial viability of green infrastructure, like Temasek and HSBC-backed Pentagreen Capital, BlackRock-supported Alterra and the World Bank’s Private Sector Investment Lab.

Transition credits, a novel class of carbon credits, is a financing mechanism that is being piloted by two Philippine coal plants to improve the commercial viability of phasing out Asia’s relatively young coal fleet by 2040. The proceeds from these credits will go to the just transition of workers and ensure the permanent decommissioning of the coal plant, according to Eric Francia, President and CEO of ACEN Corporation, which aims to retire the South Luzon Thermal Energy Corporation (SLTEC) coal plant a decade earlier. This could help the Philippines avoid up to 19 million tonnes of carbon dioxide emissions, based on the latest estimates according to the Coal to Clean Credit Initiative (CCCI)’s draft methodology, which is currently under review by certifier Verra. But getting governments to off-take such credits remains a challenge. To date, only Singapore has publicly pledged to buy transition credits in the future.

People-centered climate transition

With the just transition gaining momentum through mechanisms like the Just Energy Transition Partnership (JETP), Sharan Burrow, Global Board of Director of the World Resources Institute, stressed the need to engage workers, unions, and communities to obtain the social licence to operate.

"The global financial system needs to be transformed such that every financial decision and asset class is not only climate-aligned, but supports a just transition of communities and workers in developing nations," said Professor Nick Robins, who helms the London School of Economics' recently-launched Just Transition Lab. Starting with the global bond market, the lab is developing metrics to measure just transition performance and ways to integrate them into corporate transition plans.

Watch the session playbacks: