Looking Back on 2018; Looking Forward to 2019
It’s that time of year again when we ask ourselves: are we any closer to mobilising the trillions of dollars needed to achieve the Sustainable Development Goals (SDGs) and deliver global climate action under the Paris Agreement.
Reflecting on the last 12 months, it would be easy to be disheartened. Foreign direct investment into emerging markets fell, a trend exacerbated by US / China trade tensions and the debt crises in Turkey and Argentina. Responses to the Intergovernmental Panel on Climate Change’s report on global warming ranged from deeply concerned to shocking. Institutional investors still allocate less than 1% of their portfolios directly into infrastructure (and of that only a fraction is sustainable or goes to frontier markets). 87% of assets managed by the world’s largest pension funds have not undergone any formal assessment for climate risk. Climate risks are not yet widely factored into financial decision-making or priced into long term financial thinking. Information asymmetries, misaligned incentives, financial mis-education and a lack of available data, conspire to leave portfolios over-weight on carbon risk and under-exposed to the new climate economy.
On the 2017 numbers, multilateral development banks (MDBs) still mobilise less than $1 of private capital for every public dollar. The preliminary figures for 2018 suggest that that there will not be much improvement and to our knowledge, only one MDB has set a formal mobilisation ratio target. Guarantees make up only 4% of MDB climate finance commitments, despite being one of the most catalytic instruments at mobilising private capital.
Despite the low points, we also saw major progress this year, with a slew of corporate commitments and growing investor action on climate. Almost 150 companies committed to go 100% renewable under the RE100 initiative and more than 300 investors – with a combined $32 trillion in assets – signed up to Climate Action 100+ to urge the world’s largest emitters to curb emissions. More banks announced that they will no longer finance greenfield coal assets, and almost 300 financial firms, responsible for assets of nearly $100 trillion became supporters of the Task Force on Climate-related Financial Disclosure (TCFD).
We are also seeing a proliferation of SDG-related financial instruments in the market and the green bond market is booming (the Climate Bonds Initiative counts almost $158 billion in green bonds issued in 2018 with a total universe of $1.45 trillion climate-aligned bonds). ESG negative screening has been widely accepted and there is growing interest in the ~$230 billion impact investing market. In some sectors – most obviously coal – the cost of capital and credit ratings are starting to reflect climate risk as sustainable finance and disclosure become more mainstream.
Governments are playing their part, as they design regulatory frameworks with new standards, green taxonomies, and incentives for disclosure. Some countries have made investing in the SDGs a national priority. Indonesia is one example, issuing the world’s first green sukuk bond ($1.25 billion) and the world’s first sustainable land use bond ($95 million) this year. With the help of the Taskforce, Indonesia also launched “SDG Indonesia One” – a blended finance platform which will help to mobilise institutional investment for sustainable infrastructure in the country. $2.34 billion had already been committed to this platform when it was launched in October, with a target of $4 billion.
Finally, we are seeing huge innovation within the development finance community. Development banks and philanthropies are natural champions of the SDG agenda, aligning portfolios to the Paris Agreement and developing new platforms and programmes to crowd in institutional capital for high impact sectors and/or geographies. Private capital mobilisation has, more recently, become a board-level issue for multilateral and bilateral development banks alike. Target setting, new incentive structures and scaling up the use of catalytic instruments like guarantees are increasingly on the agenda internally and with shareholders.
On balance, 2018 has been a critical year. To deliver on Paris and the SDGs we know we need to shift from a high-carbon energy system where around 80% of the world economy runs on fossil fuels, to a zero-carbon energy system by mid-century. This will mean renewing our energy-related infrastructure to the tune of $200 trillion and decarbonising at least $50 trillion of existing infrastructure over the next 30 years. We also know we need to invest up to $500 billion a year to transform our food and land use systems. These are entirely achievable goals given the size of the current world economy (~$80 trillion in 2017) and its expected growth to around $145 trillion by 2035. There should be no macro-economic constraint on building this new economy. Indeed, redirecting these capital investments into low-carbon technologies and regenerative, circular models of production and consumption could drive higher-quality, lower risk economic growth.
However, if we don’t turn this year’s momentum into rapid action and the right kinds of partnerships in 2019, then we will run out of time to effect these economic transformations. The rest of this note lays out what the Taskforce has, with your help, achieved this year to accelerate this agenda, as well as our vision for 2019. Above all, as we reflect on the year that was, and the action we need to take going forward, we thank you for the leadership you show every day in this space and for your support (financial and in kind) for the Taskforce itself. This doesn’t happen without you and we are so grateful for your support.
Impact and priorities
It would be impossible to capture everything, but some of the highlights from the Blended Finance Taskforce over the past year include:
From thought to action: Launching an ambitious Action Programme with 8 key initiatives and over 20 active champions from the public and private sector
Development bank mobilisation: Shaping international dialogue on climate finance and development bank mobilisation; supporting development banks and development agencies through bilateral engagement on their mobilisation strategies
Investing in sustainable infrastructure: Hosting two investor roundtables on sustainable infrastructure, including preliminary analysis on institutional investor allocations and public commitments
Capital for the SDG agenda: Helping to mobilise up to $10 billion for SDG-related investments in Indonesia and around the world through the Tri Hita Karana Forum for Sustainable Development (THK Forum) in Bali around the World Bank Annual Meetings
New blended finance platforms: Working with PT SMI to structure the SDG Indonesia One blended sustainable infrastructure platform ($2.34 billion committed, target $4 billion); inspired the launch of the Climate Finance Partnership, an investment vehicle to be managed by BlackRock which was developed by the Philanthropic Taskforce to invest in climate-related infrastructure in emerging markets
Scale up blended finance vehicles: Working with over 10 blended finance vehicles and instruments across priority sectors to help scale activities and increase exposure (including The Currency Exchange (TCX), Climate Investor One, SDG Indonesia One, the Emerging Africa Infrastructure Fund, the Tropical Landscapes Finance Facility, Clarmondial’s Food Securities Fund, Lestari Capital’s Sustainable Commodities Conservation Mechanism, AgDevCo, the &Green Fund, Partnerships4Forests, the Blue Forest Resilience Bond, the Natural Capital Finance Facility, The Billion Dollar Fund for Women and many others
Capacity building: Developing “Initial Project Screening Tool” for renewable energy projects in developing countries
Strengthening partnerships and market-making: Acting as an intermediary between the “public” and the “private” sectors, building the knowledge base around sustainable finance and SDG-investing, facilitating new partnerships, bridging the gap between the development finance community and institutional investors, advising new vehicles on optimal structures, and helping mobilise capital by acting as an informal deal platform (including through initiatives like France’s One Planet Summit and the City of London’s Green Finance Institute)
Development guarantees: Working paper about how to unlock the power of development guarantees plus bilateral consultations, Taskforce virtual roundtable and panels at the THK Forum on this topic
Data and reporting: Supporting Taskforce partners to improve data on blended finance vehicles and instruments including input to the OECD survey for funds and facilities
Thought leadership: Publishing two articles in global magazines: Moving to Mobilisation published in Financing the UN Development System and Sustainable Infrastructure – the untapped SDG opportunity published in the Global Goals Yearbook; contributed to a number of major reports including the New Climate Economy’s “Unlocking the Inclusive Growth Story of the 21st Century”, the Energy Transition Commission’s “Mission Possible: Reaching net-zero carbon emissions from hard to abate sectors” and “Better Blending: Making the case for transparency and accountability in blended finance”
Media and comms: Tracked over 100 media mentions including Bloomberg, Financial Times, Reuters, The Guardian, Forbes, ImpactAlpha, Devex, IISD +++
Network and events: Curated and contributed to over 50 panels and events including a session at the Oslo Tropical Forest Forum on mobilising institutional capital for sustainable land use and forest restoration, a one-day conference with TCX and Germany’s BMZ on the importance of local currency finance to deliver the SDGs, and an ILX seminar with institutional investors on private debt in emerging markets
SDG impact: Delivers on at least 14 of the 17 SDGs
Fundraising: Achieving the 12-month Taskforce budget with 50% of funders coming from the private sector [currently finalising 18-month budget]
The Blended Finance Taskforce is on track to deliver the major outputs of its Action Programme over the next 9 months. There is a lot to do in 2019 to make sure that happens, and we are excited to continue working with you to drive this agenda. Some of our key priorities include:
Products for institutional investors: Catalogue the suite of key instruments and products which are mobilising institutional capital for the SDGs (especially in our priority sectors of sustainable infrastructure, food and land use, oceans/plastics, and resilient cites)
Scaling blended finance vehicles: Help innovative partners set up or scale blended finance vehicles for emerging markets in priority sectors (sustainable infrastructure, clean energy, food and land use, oceans and resilient cities)
Investor ranking: Explore partners to develop an annual Investor League Table of climate finance commitments and sustainable infrastructure allocation to create “a race to the top” and improve transparency; support/help accelerate and profile the mission of other investor initiatives (e.g. ShareAction’s Asset Owners Disclosure Project, CBI/M2020’s Green Bond Pledge, Ceres/CDP Investor Agenda); support national programmes that aim to mainstream and increase ambition for sustainable finance (e.g. UK’s Green Finance Institute and France’s One Planet Summit)
Development bank mobilisation: Work with Taskforce mobilisation “champions” to develop ambitious strategies to drive external private capital mobilisation; undertake more granular analysis on MDB mobilisation data released for 2018, continue to broker open performance dialogue between institutional investors, fund managers, commercial banks and development finance institutions
Development guarantees: Continue engaging development agencies and ministries that are considering or looking to scale the use of development guarantees; link up fragmented research efforts on guarantees as an instrument across the blended finance community (including with the G20 working group for MDB instrument harmonisation) to ensure the private sector perspective is included
Finance working group for the food and land use agenda: Establish a high-ambition “Finance for FOLU” working group with experts and practitioners to help mobilise capital for the food and land use agenda; partner with the Food and Land Use Coalition to identify capital required to transform the food and land use system and recommend ways to mitigate risks to scale up the right kind of investment
Insurance products for ocean risk: Work with leading insurers and climate risk analytics teams to develop insurance products and partnerships which can mitigate investor risks and build global resilience (with a particular focus on ocean risk including with the Ocean Risk and Resilience Alliance), including further Taskforce consultations and a high-ambition investor roundtable series
Other priority sectors: Explore partners for investor roundtables on blended finance for resilient cities, healthcare (with a focus on data and insurance), or affordable housing
Incubation for pipeline: Working with established and new incubator programmes to accelerate project development, support innovative finance solutions and facilitate follow-on financing. Examples include P4F, FNE, CPI’s “The Lab” (which now has a sustainable land use and Africa focus), Seedstars, Investing for Food, Prospero and others
One Planet Summit and other policy levers: Working with France’s One Planet Summit initiative on its finance, climate, oceans and biodiversity workstreams; engaging with the Eminent Persons Group and MDB Heads on development bank mobilisation strategies
Blended finance capacity in developing countries: Work with emerging market infrastructure units and/or aspirational national/regional development banks to mobilise a network of blended finance institutions to help share knowledge and build capacity (e.g. with IDCOL in Bangladesh, PT SMI in Indonesia and FDN in Colombia); strengthen synergies within the blended finance ecosystem to build on-ground capacity within local institutions and for foreign investors (e.g. through SDIP/WEF Africa and ASEAN hubs, CGDev, green investment banks, the GIIN, Convergence etc.)
Database of development capital providers: Explore potential partners that can build and manage a digital database for concessional finance facilities and climate funds (information is scattered and hard to navigate for finance practitioners not familiar with development institutions and climate funds)
Financial ecosystem: Accelerate initiatives and proposals which look to overcome barriers to investing in emerging markets (e.g. public access to the GEMs database and regulatory review of Basel III and Solvency II, including with the Insurance Development Forum)
 A recent study by Pinsent Masons found that ¾ of the biggest UK corporate pension funds recognise the potential impact of climate change, only 5% have a specific policy in place and none of the top 43 UK pension funds have targets for investment in low carbon, energy efficient or other sustainable assets. None have a decarbonisation target.
 Better Growth Better Climate - http://static.newclimateeconomy.report/wp-content/uploads/2014/08/BetterGrowth-BetterClimate_NCE_Synthesis-Report_web.pdf
 “Asset & Wealth Management Revolution: Embracing Exponential Change”, PWC 2017.
 Taskforce priority sectors include: sustainable infrastructure, food and land use, oceans/plastics, and resilient cites.