Climate Finance Insights

This week, the COP30 Brazil Circle of Finance Ministers, led by Minister Fernando Haddad, published its report on the Baku to Belém Roadmap to 1.3T after months of work. The document addresses important issues in climate finance across five priorities: ✅ Scaling Up Concessional Finance and Optimizing Climate Funds; ✅ Reforming Multilateral Development Banks to Scale up Sustainable Finance; ✅ Boosting Domestic Capacity and Investment Frameworks for Climate Finance, including Country Platforms; ✅ Developing Scalable and Innovative Financial Solutions for Private Capital Mobilization; ✅ Strengthening Regulatory Approaches for Climate Finance The collaborative effort of over 30 Finance Ministers reflects the imperative of reinforcing multilateralism, pushing the international financial architecture to function more coherently as a system, and advancing climate action in the renewed spirit mutirão in support of the Baku to Belém Roadmap, the COP30 Action Agenda and the implementation of the Paris Agreement. The ministers wrote beautifully in their statement: “As the cost of inaction on climate change rises, it disproportionately exposes the world’s most vulnerable populations — who have contributed least to historical emissions — to escalating climate risks, highlighting inequities embedded in climate change. Every year of delayed climate action raises both the investment needed and the risks faced.” The report will make a vital contribution to the Baku to Belém Roadmap, which we are co-authoring with the COP29 Azerbaijan Presidency and will publish in the coming weeks. As we move from words to action, this work reminds us that the transformation of the global financial system is both urgent and possible — if we act together, with purpose and solidarity.

📢 Tom Gosling, Dirk Jenter and I have significantly revised our Sustainable Investing survey paper, thanks to extensive feedback from both academic and practitioner audiences 🙏 🆕 Now titled: "Sustainable Investing in Practice: Objectives, Constraints, and Limits to Impact" The data hasn't changed, but we’ve sharpened the analysis (and the title) to make the takeaways clearer. 1️⃣ Objectives 💰 The primary motivation for incorporating Environmental and Social (ES) factors is financial returns - even in sustainable funds. ⚖️ Very few investors are willing to sacrifice returns for ES performance, mainly due to fiduciary duty. 🔹 Only 5% of sustainable and 2% of traditional investors are willing to give up >50 bps/year. 🔹 A 50 bp cost of capital shift = ~$5/tonne carbon tax equivalent. 2️⃣ Beliefs 🧠 “ES is extremely important and nothing special” (as I wrote in "The End of ESG"). ✔️ Important: Even traditional investors believe ES is linked to long-term returns, especially on the downside. ❗ Nothing special: The main reason for the link is ES signalling other value-relevant factors (e.g. good governance and forward-thinking management), rather than mattering directly. 🔹 These beliefs drive behaviour. ES integration is driven more by whether fund managers believe in ES alpha than whether their fund has a sustainable label. 🔹 Most investors think companies already manage ES well, rather than there being substantial underinvestment that would warrant large-scale engagement. 3️⃣ Constraints 📜 Constraints are a key force shaping ES integration into stock selection, voting, and engagement. 🔐 Sustainable funds are often bound by mandate constraints—this, more than non-financial objectives or alpha beliefs, distinguishes them. 🏛️ But traditional funds also face constraints, e.g. from firmwide policies. 4️⃣ Limits to Impact 🚫 Given (a) financial objectives, (b) the belief that companies aren't systematically underinvesting in ES, asset managers are unlikely to lead the charge in transforming companies' ES. Not due to greenwashing, but because they’re not set up to prioritise externalities over long-term value. 🏛️ That’s the role of governments (or impact investors), not mutual funds. https://lnkd.in/eGzRzE5t

Double Materiality 🌎 Beyond compliance with key regulations like CSRD, double materiality assessments are essential for businesses to develop a comprehensive sustainability strategy. This framework helps companies identify how their activities impact society and the environment while also assessing how sustainability-related risks and opportunities affect financial performance. Impact materiality examines how a company’s operations influence people and the planet, covering topics like climate change, biodiversity, and social equity. Financial materiality focuses on how sustainability factors, such as regulatory changes, resource scarcity, or reputational risks, impact business performance and long-term growth. Some issues, like climate change mitigation, resource management, and labor conditions, fall under double materiality, meaning they are significant for both external impact and financial outcomes. By integrating double materiality, companies can align sustainability efforts with business objectives, risk management, and investor expectations, strengthening corporate resilience. This approach ensures that sustainability is not just a compliance exercise but a strategic tool to drive innovation, operational efficiency, and stakeholder trust. It also supports transparent reporting, helping businesses meet increasing demands from investors, regulators, and consumers for credible sustainability disclosures. Sectors like finance, manufacturing, and retail are already leveraging double materiality insights to guide decision-making, investment strategies, and supply chain management. This matrix developed by Vestas in their sustainability report is a great example of how to structure a double materiality assessment, clearly linking environmental and social impacts to financial performance and strategic decision-making. #sustainability #sustainable #business #esg #climatechange #doublemateriality #materiality

What happens when companies break their climate promises? Almost nothing. A new study has uncovered troubling truths about corporate climate commitments. Out of 1,041 companies with emissions reduction targets set for 2020: -9% (88 firms) openly failed to meet their goals. -31% (320 firms) stopped reporting on their targets without explanation. What happens when companies miss these targets? Practically no consequences: -Only three failed companies faced media scrutiny. -No significant market backlash, media sentiment shifts, or ESG rating downgrades. In contrast, companies were rewarded with positive press and improved ESG ratings simply for announcing these targets. The bigger issue: This accountability gap threatens the credibility of ambitious 2030 and 2050 climate pledges. Unlike financial targets, which are rigorously monitored, emissions goals often exist in a vacuum—without oversight or real consequences for failure. Interestingly, the study found that: -Firms in common-law countries and those with stronger media accountability had better success rates. -High-emitting sectors like energy and materials struggled the most, with the highest rates of "disappeared" targets. With more companies backing away from climate action, we cannot afford to let this cycle continue. It’s time for corporate sustainability leadership to move beyond announcements and deliver measurable, transparent results. Accountability mechanisms—demanded by both regulators and stakeholders are urgently needed. A great piece of work by Xiaoyan Jiang, Shawn Kim, and Shirley Simiao Lu! Let’s learn from these insights to ensure that corporate climate pledges actually deliver. #climatechange #netzero #esg

📊 Exciting new research from the European Central Bank (ECB) sheds light on how banks are pricing climate risk in their lending practices! 🌿 In their working paper, Carlo Altavilla, Miguel Boucinha, Marco Pagano, and Andrea Polo combine euro-area credit register data with carbon emission information to uncover fascinating insights into the intersection of finance and climate change. 🏦 The study finds that banks are indeed factoring climate risk into their lending decisions. Firms with higher carbon emissions face higher interest rates, while those committed to reducing emissions enjoy lower rates. Interestingly, banks that have publicly committed to decarbonization goals (through initiatives like Science Based Targets initiative) are even more aggressive in this pricing strategy. 💶 But here's where it gets really intriguing: the researchers uncovered a "climate risk-taking channel" of monetary policy. When the ECB tightens monetary policy, banks not only increase their overall credit risk premiums but also amplify their climate risk premiums. This means that during periods of monetary tightening, high-emission firms face a double whammy of increased borrowing costs and reduced access to credit compared to their greener counterparts. The authors argue that while restrictive monetary policy may slow down overall decarbonization efforts, it inadvertently creates a more favourable environment for low-emission firms and those committed to going green. 🌍 These findings are crucial for understanding how the financial sector is adapting to climate change and how monetary policy interacts with climate-related financial risks. It's also clear that the greening of finance is not just a trend, but a fundamental shift in how risk is assessed and priced in our economy. #ClimateFinance #SustainableBanking #MonetaryPolicy #ECB #GreenEconomy #ClimateRisk

Today, we’re proud to release the Bill & Melinda Gates Foundation’s latest white paper on climate and development. It offers a clear path for aligning investments to help the world’s poorest countries make faster, smarter progress toward shared global goals. The paper highlights how countries can tackle three imperatives: development, climate adaptation, and climate mitigation. By matching the right type of financing to the right investments, we can maximize impact, no matter the country's distinct needs. Take Ethiopia, a nation that has made remarkable strides but is now struggling under multiple crises—from climate shocks to health emergencies. For such countries, we need new approaches to funding—approaches that don’t pit climate action against human development. This paper outlines a blueprint for policymakers, donors, and institutions to work together, ensuring that resources are directed where they’ll make the most difference. It’s not just about funding more—it’s about funding better. https://lnkd.in/eaqf2GRb #GlobalDevelopment #ClimateFinance #DevelopmentFinance

📣 Breaking Down Capital Structure in #ClimateTech Startups Understanding the capital structure in climate tech #startups, particularly those hardware-based, can differ greatly from digital startups. 👇 Hers’s an illustration of the evolution of capital types over time - equity, grants, and debt - with actual 💶 figures. Key takeaway: The name of the game is Non-Dilutive Capital ⭐ 1️⃣ Embrace Non-Dilutive Capital: Scaling with equity alone is a non-starter. There's insufficient climate-dedicated VC money out there and it's far from the most efficient way to finance CAPEX due to ownership dilution and the Cost of Equity. 2️⃣ Optimise Timing: With careful planning, each funding round can be delayed, allowing your company value to mature by achieving higher TRLs. Leverage grants wisely and delay equity funding rounds. 3️⃣ Strike a Balance with Grants: While grants are attractive, an overdose can divert you from your main focus of selling products and turn you into an R&D centre. Exercise caution! 4️⃣ Consider Debt Early: It's rocket fuel for growth. Proper measures can ensure you secure it even before hitting TRL9. 💡Tips for Raising Non-Dilutive Capital: General: - Begin early, it takes time - Build a solid funnel (4:1 ratio is a good rule) - Engage experts, it saves time and ups your chances Grants: - Be prepared to have some fresh equity to unlock certain grants - Participate in competitions - every sum counts and it's free exposure! Debt: - Sign off-takes to significantly boost your chances - Get in touch with your regional bank - they look at more than just ROI. It's time to rethink and redesign your capital strategy! #venturecapital #funding #innovation

Are offsets any good? Is it still possible to fund climate projects that matter? ❓ Despite the best intentions, the effectiveness of carbon offset has been under scrutiny ever since an investigation sparked by the Guardian, early 2023, revealed that nearly 90% of carbon credits were essentially worthless... ❓ Yet, we need to scale carbon capture to nearly 10 GT of CO2 by 2050 according to the IPCC if we are to achieve Net Zero. It's all the more essential to identify meaningful solutions. Our new Greenly | Certified B Corp study sheds some light on this What we now think we know: 🧐 Offset projects, especially in forestry, had been grossly overstating their impact. 🌲❌ The biggest failings of these offsets is "additionality" : many projects exaggerated threats or were already viable without carbon credits. This resulted in funding activities that would have occurred anyway, thereby providing no real additional environmental benefit. 🌍🔍❌ 🏢⚠️ Major corporations like Shell and Disney relied on these misleading credits to claim carbon neutrality, leading to widespread greenwashing accusations. 📉🕵️♂️ Without rigorous oversight, these schemes misled consumers and investors into thinking they were supporting effective climate action, when in reality, the environmental benefits were negligible. As the new Greenly | Certified B Corp study shows, offsets have therefore become a risk for ESG leaders, sparking tough questions and reducing the investment in them: - Greenwashing vs. Genuine Impact: Are we truly making a difference or just polishing our public image? 💅🕵️♂️ - Local vs. Global: Should we focus on local projects to support our communities or invest globally for broader impact? 🌐🏘️ - Carbon Neutrality: A Myth?: Is "carbon neutrality" just a convenient buzzword? Are we fooling ourselves? 😱🤔 Recreating trust is all the more essential. Guiding principles include: 👉 Companies must focus on measuring and reducing their emissions first, abandoning claims of carbon neutrality, and focusing instead on multi-year strategies typically in line with Science Based Targets initiative 👉 For emissions that can't be reduced right away, funding projects is still interesting, provided they are real. 👉 Funding real projects means in general disregarding forestry or renewable offset projects that typically have little additionality, and instead, focusing on real capture, typically stronger in the following areas: Industrial Processes, Energy efficiency, Ocean, Soil, Mineralization, Direct factory capture, Gas capture... Learn more about these fascinating topic in our new Greenly | Certified B Corp study here : https://lnkd.in/eKeRc6Ny

Climate Risks Are Financial Risks An alarming USD 1.14 trillion in corporate value, linked to the world's largest stock markets is exposed to severe socio-economic impacts from #climatechange by 2050. Data from the Climate Hazard and Vulnerability Index (CHVI) highlights a critical blind spot for many businesses: 📌 48 countries will be highly vulnerable to socio-economic climate impacts by mid-century, double today’s figure. 📌 Major emerging markets are expected to face significant climate-related disruptions. 📌 India alone accounts for over USD 1 trillion of the at-risk corporate assets, dramatically impacting global markets and supply chains. 🚨Companies must place dedicated climate leadership at the highest level to proactively identify risks, anticipate market disruptions, and strategically invest in long-term resilience. 🚨 Businesses should move beyond physical hazards to systematically report and manage socio-economic climate vulnerabilities. Transparent, detailed disclosures help stakeholders understand risks and encourage informed investments. 🚨 Corporates must prioritize investment in resilient infrastructure, diversified supply chains, and sustainable practices, particularly in vulnerable regions. This strategic foresight protects operational continuity and market valuation. The globalized nature of corporate operations means that climate vulnerability anywhere becomes a financial risk everywhere. 🌱 Is your company equipped with climate leadership at board level? Read more here 👇 https://lnkd.in/eFnsnjyY #ClimateRisk #ClimateLeadership #SustainableGovernance #ESG #BoardGovernance #InvestmentStrategy #Resilience #ClimateAction

Investing in a Changing Climate: Climate change presents two major financial risks for #investors, transition and physical risks; together, these risks accelerate the devaluation of #assets, potentially rendering them stranded long before the end of their expected lifecycles. 🔹 Transition risks—driven by rapid policy shifts, evolving market behaviors, and technological innovations—impact industries beyond fossil fuels, including real estate, automotive, agriculture, and heavy industry. 🔹 Physical risks—such as extreme weather, rising sea levels, and prolonged heat stress—can disrupt supply chains, reduce worker productivity, and devalue assets. A delayed transition brings hidden risks—while some sectors (utilities, basic resources) may see short-term relief, they face sharper, more destabilizing corrections when policy action eventually accelerates. Using NGFS climate transition scenarios (Baseline, Net Zero 2050, and Delayed Transition) alongside Discounted Cash Flow (DCF) and Interest Coverage Ratio (ICR) valuation methods, we identify sector-specific vulnerabilities across the US and Europe. 📉 Sectors at risk under a Net Zero 2050 scenario: 🔹 Real estate (-40% in Europe) due to energy efficiency mandates and rising costs. 🔹 Telecommunications (-26.3%) and consumer staples (-24.8%) facing stricter carbon regulations. 🔹 Energy (declines of -6% to -7%) as fossil fuel operations become costlier. 🔹 Basic resources (-11.9%) and technology (-11.7%) showing relative resilience but still facing policy-driven adjustments. 📈 Sectors showing resilience across scenarios: 🔺Technology & Healthcare remain stable due to innovation and lower emissions intensity. 🔺Consumer discretionary in the US (-16%) sees moderate declines but adapts through renewables and supply chain shifts. A well-orchestrated transition is critical to minimizing financial shocks. Scenario-based risk assessments allow investors to safeguard portfolios, mitigate stranded asset risks, and capitalize on opportunities in the green economy. #ClimateRisk #NetZero #SustainableFinance #ESG #Investing #ClimateTransition #RiskManagement #AllianzTrade #Allianz