The Business of Climate: Acceleration and Scale

The private sector has increasingly seen many of its largest players announce corporate-specific net zero or carbon reduction targets. Green bonds have seen significant levels of issuance through the first three quarters of 2021—to the tune of $362.1 billion—as environmental, social, and governance (ESG) concerns have risen on corporate agendas. The US renewables market alone saw nearly $24 billion in private equity investment in 2020. Clearly, these indicators demonstrate the private sector is fiercely interested in climate.

The Paulson Institute and the International Finance Forum (IFF) co-hosted a panel session titled The Business of Global Climate Change as part of the Global Climate Investment and Finance Summit of the IFF’s 2021 Annual Meeting on December 5.

Click to play the event footage.

Deborah Lehr, Vice Chairman and Executive Director of the Paulson Institute and IFF Board Member, moderated the conversation. The panel of global experts included Bindu Lohani, IFF Academic Committee Member and Former Vice President of Asian Development Bank, Xu Lin, Chairman of the China-US Green Fund, Sonja Gibbs, Managing Director and Head of Sustainable Finance for Global Policy Initiatives at the Institute of International Finance, Lai Xiaoming, Chairman of Shanghai Environment and Energy Exchange, and Kyung-Ah Park, Managing Director of ESG Investment Management at Temasek.

Representing perspectives of various stakeholders working to drive the business of climate forward with greater acceleration and scale, the panel covered a vast amount of ground.

Lohani’s comments drew upon his previous experiences to speak about the role of the public sector and multilateral development banks (MDBs) in funding green transition. Xu’s remarks highlighted China’s decarbonization efforts from the fund investor perspective, with particular emphasis on new technology investments and international carbon cooperation. Gibbs added insights on the drivers of climate-positive actions for business including the development of financial regulatory regimes.

As the head of the sole trading market for China’s national carbon market, Lai shared the latest on the market and outlined the necessary improvements to strive for in the near term. Lastly, Park provided her thoughts on the risk and opportunities for climate investment as well as what more is needed to be able to meet ambitious decarbonization and net zero goals.

The experts honed in on a few key points:

  • COP 26 showed that business is more engaged than ever on climate. While that is encouraging, there remains a great urgency given study after study and a growing pool of data showing climate impact and climate risk repercussions are being acutely felt by business—making climate resilience a business imperative. And while climate response and economic growth are mutually reinforcing with many business opportunities, a practical question remains for business in thinking through how to turn the external benefits of green projects into internal returns for investors or companies.
  • There is a massive funding gap to transition to net zero. Putting a price on carbon, greater synergies between the private and public sector, more creative financial innovations, and substantive regulatory coordination on greenwashing, standards, and disclosures are potential solutions to begin to close the gap.
  • Technology plays a large part in decarbonization efforts. It enables carbon reduction such as through clean energy and sustainable agriculture, transitioning business from brown to green particularly in the hard to abate sectors and carbon removal such as carbon capture or nature-based solutions. Some estimates suggest 85% of emissions can be saved by technology in the future, but it will take capital to help fund R&D and scaling. This is especially important for countries like China where the manufacturing industry emits 30 percent of its carbon emissions and the gap between China’s energy efficiency level and that of advanced countries is about 30-40 percent, effectively meaning a reduction in coal consumption will likely come via natural gas transition.

The outlook for the business of climate is driven by growing momentum and confidence. For instance, the EU and China have worked on a common taxonomy and there are 5,000-6,000 new laws and regulations being introduced globally to help develop green finance standards. However, there is a sense of caution as well. The speed and scale at which business is addressing climate has not yet reached a level equal to, but really should be greater than, the increasing magnitude and potency of the challenge as the world moves closer to 2050.