Mobilizing Finance to Fight Climate Change: COP26 Recap
In the second week of the 26th Conference of the Parties (COP26), Nasdaq’s Bjorn Sibbern, President of European Markets, offered key insights on the financial sector’s role in the fight against climate change, specifically how public exchanges can extend their impact by creating more capital and to connect investors with more sustainable investment opportunities.
The discussion revolved around three key needs:
- Standardizing Climate Data
- Managing Risk
- Changing Rules and Values
Standardizing Climate Data
The panel discussed the need to redesign the financial sector to adapt to increasing climate action and accountability. This idea called for more concrete measurements and more accurate data gathering and reporting.
While 85% of emissions reduction needs to come from the private sector, there is a huge gap between reduction targets and a comprehensive, agreed-upon array of metrics to report and analyze climate impact. This creates challenges for companies as well as investors, “If you are an institutional investor and want to invest in sustainable bonds, it's difficult to find data and gather the data. What we try to do is gather data from all the sustainable bonds around the world and put it out there. So, you, as an investor, can find and measure the sustainable bonds that you want to invest in to make it more accessible,” said Sibbern.
Sibbern’s reference to Nasdaq’s Sustainable Bond Network is one of Nasdaq´s innovations answering for this climate data issue. By distilling an array of sustainable bonds into one standardized framework, we allow investors to compile and compare bonds, and generate impact reports to make the most informed investment decision.
Nasdaq also partners with several suppliers, such as CleanTech Group, a company that measures the actual environmental impact of companies who claim to create sustainable innovations. CleanTech Group and other suppliers are available to investors through our Environmental, Social and Governance (ESG) Data Hub.
Managing Risk
When it comes to developing these climate projects with capital raised in the financial sector, the panelists’ main problem was deciding, “What makes a project investable?” All agreed that managing risk is the key to successful investment, but they had varying concerns on how risk should be shared and why.
Steven Guilbeault, Minister of Environment and Climate Change for Canada and a former Greenpeace activist, believes that governments are the key to minimizing risk, incentivizing private capital to buy into essential climate projects with opportunities that are low risk while also promising enough return.
Kate Forbes MSP, Scotland’s Cabinet Secretary for Finance and the Economy, disagreed. While she believes funding can be incentivized from governments, her concern is in the private sector’s rate-of-return mindset, which favors investment to the highest profit and tends to neglect the communities most in need.
Pushing back, Sibbern noted the recent drive toward ESG by many companies and investors. He hinted that the shift away from the “rate-of-return” mindset Forbes hopes for might already be happening: “Most retail investors are actually willing to [take] a lower return if they invest in a company that has a sustainable profile. So, it's not always about return here now; they are willing to sacrifice some of that for investing in a company that has a sustainable profile,” according to Sibbern.
Though even before actualized climate mitigation projects look for investments, the panel recognized the need for initial investment and risk in early technologies. To foster those initial investments, Sibbern sees an essential role for public exchanges by combining both public and private on public exchanges like Nasdaq.
“That's where the financial markets play an important role. What is really important is to get scalability. That's when you list on the exchange to get further access to capital, to grow your small niche innovation business globally and get [that] scalability. So, I think that's where public and private work so well together, where you get access to capital from the public markets to grow bigger, and that's where you really get the impact on sustainability,” said Sibbern.
Alongside fostering climate investment on the public exchanges, Sibbern highlighted the emerging markets like Puro.earth, where companies can offset their emissions by investing in carbon net-negative technologies that remove more CO2 from the atmosphere than they create.
Changing Rules and Values
The common thread throughout the panel was a need to change the rules, to fix the “plumbing” and infrastructure of the financial sector to ensure that developing nations don’t get left behind. Furthermore, the values and mindsets concerned solely with profit need to adapt to be more friendly to the growing demand for climate action.
Conclusion
While governments continue to debate their climate agendas, it seems investors are plowing ahead with funding innovative sustainable technologies like electric vehicles (EV). In the past week, the demand for electric car manufacturers led Rivian’s initial public offering (IPO) to break records as the largest IPO in the U.S. for 2021 and the 7th largest in U.S. history.
This accelerating interest in sustainable technology shows that when it comes to changing the rules of the financial sector and government interest, investors hold a lot of power in pushing forward climate agendas.
As Sibbern made clear, “Investors have a huge impact on governments and many of the listed companies. They have a massive impact, and they are using that.”
Other Topics
Politics Public Policy Sustainability Renewable Energy
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