“We have no time to lose. The warmer climate already affects natural and human systems around the world, such as more temperature extremes, rising sea levels, more heavy rainfall and more frequent and intense droughts. This has a severe impact on societies and economies. To limit global warming to a maximum of 1.5°C, the world must radically reduce its CO2 emissions starting right now”, comments Itske Lulof, Director Energy & Climate at Triodos Investment Management.
Banks should take the lead, because they have the capacity and obligation to finance entrepreneurs and institutions committed to tackling major social and ecological issues. According to the 2018 report of the High-level Advisory Group on Sustainable Finance, an investment of EUR 11.2 trillion is required to meet the European 2030 energy policy and targets set in the Paris Agreement. In financing the energy transition, the bulk of the financing comes from banks.
Triodos Bank proposes several actions financial institutions should take:
- Change policy
Climate change risks and management thereof, should become an active topic in board rooms.
- Focus on project finance
Banks should focus specifically on asset and project finance and infrastructure, because this is where the biggest financing need exists in terms of volume.
- Make projects investable
There are several prerequisites, including experimenting with new business models, consistent regulation without bottlenecks for the energy transition and the development of fundamentally new business models based on true pricing (including the costs stemming from unsustainable production and consumption).
- Develop tools for true pricing
To stay within ecological limits, tools must be developed to calculate true prices, which means including costs stemming from unsustainable production and consumption.
- Seek non-mainstream opportunities
The finance sector should also play an active role in tackling the obstacles for realising non-mainstream projects. Banks and investors should pioneer with new business models and develop new financial instruments.
- Investment needs in emerging markets
Even bigger investments will be needed for non-OECD countries, due to population growth, economic development and the current state of energy deficit. This also presents us with the opportunity to build a renewable energy infrastructure.
The vision paper also describes Triodos Bank’s contribution to the energy transition. Renewable energy is the group’s largest portfolio, with a total exposure of EUR 2.25 billion - 14.5% of the total group’s funds entrusted as per the end of 2018. Triodos Bank’s has been offering project finance for mostly medium-sized renewable energy generation projects, based on proven technologies. This will continue to be important, but we will broaden our scope to financing the energy transition, to financing a more decentralised and distributed energy system and more non-mainstream projects.
The financial sector does not stand alone in its responsibility to act. Sound government policy is also a very important driver of the energy transition. We call on governments to develop an ambitious and rigorous policy to phase out the fossil industry by raising CO2 pricing and ending (implicit) fossil subsidies. Governments should strengthen regulation on CO2 reduction, leading to energy efficiency in for instance housing and transportation.
Itske Lulof: “The world has witnessed increasingly positive action to combat climate change - from school children to central banks, governments and businesses. Many have picked up on these developments and shared their desire for urgent change. But despite popular protest, global emissions are still rising. Together we have an obligation to make a difference. We invite all our partners to act. We have no time left to lose.”