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Our Market Views
21/11/2017

How is Positive Impact Finance helping fight the greatest threat to mankind?

A new report by the International Union for Conservation of Nature reveals the number of world heritage sites damaged by climate change has doubled in three years to 62. It means a quarter of all heritage sites are now imperilled.

The Florida Everglades are "critical" – damaged by rising sea level causing ocean salt water to intrude. Raging wildfires have hurt the floral wonderland of the Fynbos in South Africa, home to 7,000 plant species, four-fifths of which are unique to the Cape. Retreating glaciers are changing the face of Mount Kilimanjaro.

British heir to the throne, and outspoken environmentalist, Prince Charles responded to the report with harsh words: "Climate change is in actual fact becoming regarded as the fastest growing threat, its impacts already visible in many of the sites. This report highlights the incredibly urgent need to expedite the global response to climate change."

The scale of the problem may be worse than believed. Claims that carbon emissions have peaked are too optimistic, says new research put to the United Nations. After two flat years, emissions started to rise again.

 

 

Global CO2 emissions appear to be going up strongly once again ... This is very disappointing,

Corinne Le Quéré
director of the Tyndall Centre for Climate Change Research in the UK.

Fixing the problem?

The Paris Agreement of 2015 sets out a path to keep global temperature rises within 2 degrees of pre-industrial levels. The OECD (Organization for Economic Co-operation and Development) estimates $600 billion infrastructure investment per year to 2030 is needed to hit the Paris goals. It is possible to achieve. The UN reports clean energy asset finance reached $1.657 billion between 2007 and 2016. But the momentum must be built on.

 
This is where Sustainable & Positive Impact Finance can make a significant contribution. The UN is promoting the framework, which sets out how projects can be evaluated for their contribution on one of the three pillars of sustainable development for the economy, the society, or the environment, while identifying and mitigating any negative impacts. It unites a wide variety of ethical finance under a single ethos.

We are seeing a lot of focus on green bonds, community finance, and various forms of policy financing for clean energy. Positive Impact Finance adds to this liquidity, but can also have a huge impact for small projects, and for clean energy finance in emerging markets.

Allan Baker
Global Head of power advisory & project finance at Societe Generale

African community financing could be an ideal starting point. Baker points to clean energy projects such as installing integrated solar and battery systems in non-grid connected homes. A solar panel on the roof, and a lithium-ion battery provides electricity when needed. The model works well: One scheme costs just $7 a month with zero, or low, down payment, compared to $400 for a grid connection. Such initiatives bring social and health benefits as households are less reliant on kerosene or wood-burning.

The size of the opportunity


Scale is what's missing: 600 million Africans lack grid electricity. Positive Impact Finance can introduce a flow of capital to a niche which is proven to deliver cleaner power.

But large scale projects are also viable for Sustainable & Positive Impact Finance. The cost of solar energy in the Middle East has fallen to market rates, ending dependency on subsidy. Funds can invest, knowing both the returns, stability, and environmental impact are all compliant with the ethos of Sustainable & Positive Impact Finance.

The reporting structure of Positive Impact Finance means that many energy projects which fall in its remit will improve the way. Funds will analyse and communicate the impact on society and the environment. Investors are demanding details on the full spectrum of issues related to projects they back. It means Positive Impact Finance will raise standards.

In truth, the wave of debt and equity currently targeting clean energy projects means the new code may expand the scope, rather than create a new sector per se.

Sustainable & Positive Impact Finance will help by adding further impetus to the global clean energy transition already underway. Whilst it may not be seen as a game changer for traditional renewable energy on its own, in reality it will encourage broader participation in clean energy and improve the basis on which this support is delivered.

Allan Baker
Global Head of power advisory & project finance at Societe Generale

The International Finance Corporation, a subsidiary of the World Bank, has said that private sector developments mean the fight is making it possible for governments to meet their targets on climate change. Positive Impact Finance will play its role in the wider push to keeping planet earth on the right track.