Energy transition: G7 failure on the $100 billion is a time bomb

Newsletter #14

A new narrative moment is in the air.

Last month’s IEA report that outlined an end to new fossil fuel investment after this year has heralded a distinct change of tone in all the places talking about energy transition. Fossil incumbents dubbed it the “La La Land” report, and some countries (guess who!) have said it’s not “contextualised” for them.

There’s simply a ton more information flying about on everything from green finance to COP26. Narrative crunchers are in overdrive, recognizing that this is a new “Oct 2018” moment - that sweet spot where the combo of the IPCC 1.5C Special Report and the Greta-led activism raised the bar on everything from public awareness to policy expectations.

Here we are again in a similar “everything is up for grabs” moment, just four months from the COP26 climate conference.

Today’s newsletter will look at why the G7’s failure to unleash the flow of the $100 billion climate finance which it has pledged to poor countries could jeopardize the net zero revolution; and new narratives on how to turn lobbying from enemy of dark green finance to friend.

Highlights from Green and Sustainable Finance

G7 leaders caved on specifics of the $100 billion for poor nations to decarbonise

Under dazzling blue Cornish skies last weekend, the G7 leaders failed (again) to say how rich countries would meet their (2009) pledge to provide $100 billion a year by 2020 to the world’s poorest nations to back their energy transition.

Despite pre-summit hopes for a committment from “each” G7 member to increase its financial contributions to helping the poorest countries decarbonize their economies.

So why does this matter?

The Paris Agreement will be won or lost in emerging and developing countries which have high fossil lock-in.

If rich countries can’t deliver vaccines at scale to the whole world, there will be no closure on the pandemic. Ditto for the climate finance issue which world leaders keep kicking to the next meeting.

I confess that I didn’t understand the critical importance of the $100 billion in 2015. All eyes back then were on the political tracks of the Paris Agreement, and the “development financing” track seemed like something for development specialists. That perception was reinforced by the name of the 2015 meeting in Addis Ababa which was meant to tackle this - “Financing for Development”. That meeting failed, a pledge was announced to confirm the $100 billion.

So the $100 billion is an annual commitment, composed of both public and private sector components, and it was supposed to kick in for the first time in 2020. What was on the table at Carbis Bay was the first round. Presumably this exercise will repeat in 2022.

Why is the fossil lock-in so intractable in emerging and developing countries.

  • Low levels of investment in green R & D in emerging markets, where energy systems are dominated by old, inefficient and polluting technologies

  • Many emerging countries face a threat of capital flight because of their vulnerability to climate risk

  • Renewable energy systems are cheaper, safe and cleaner but also more distributed - making them unattractive for state-owned enterprises

If you want to dig deeper, I recommend Lou Del Bello’s newsletter “Lights On” which is all about the energy transition in South Asia. The latest edition features a study on international public financing for natural gas expansion in the Global South.

Uncomfortable fact: Gas projects received a yearly average of nearly $16 billion in international public finance per year from 2017 to 2019, more than any other source of energy and four times as much as wind or solar.

The author of the study argues that:

for as long as finance flows towards natural gas, particularly in developing countries, the world will fail to achieve meaningful climate action.

Politico ran a pre-G7 piece last week arguing that leadership of climate action in the coming decades has already passed to non G7 countries.

Climate change, and the attempt to thwart it, will be decided largely in Beijing, Delhi, Brasilia, Abuja, Pretoria and Jakarta — capitals already responsible for more carbon pollution than those gathering in Cornwall.

👉 By kicking the responsibility for finding the $100 billion further and further into the future, G7 countries confirm that real leadership for transitioning the world is somebody else’s problem.

How to transform lobbying into a force for good

One of the biggest and wickedest obstacles we face on the road to sustainability is lobbying - the corporate policy capture that stops regulators acting on evidence and in the public interest.

This issue is getting more attention, and is part of an emerging narrative around the potential for lobbying to become a constructive force in the sustainability transformation.

Last month, the think-do tank Preventable Surprises launched its Corporate Lobbying Alignment Project which seeks to make corporate political capture a central component of investors’ approach to ESG stewardship and integration.

Here are some of the key findings from their report launch:

  • Corporate policy capture is a pervasive, global challenge. The latest OECD report on the subject highlights how the pandemic benefitted private lobbies worldwide by allowing corruption to flourish in public procurement of medical supplies, and also in the scramble to get government handouts.

  • Corporate policy capture often conflicts with the stated long-term ESG objectives of investors.

    A striking recent example comes from Finland and Sweden which pushed for the EU to delete “Ecological Forestry” from the Taxonomy on Green Finance. A Swedish NGO posted the letter on Twitter and asked:

How can we promote sustainable forestry when our PM is sending letters demanding just the opposite?

  • The asset management community is just beginning to engage public policy, legal and stewardship teams on these issues but must now communicate expectations more clearly to counteract negative lobbying and the risk of policy capture

Their recommendations cover three areas:

Better data eg Support the filing of shareholder resolutions demanding systematic lobbying disclosure

Changing behaviours eg Revise ESG screening criteria to include information on all forms of lobbying conduct, political finance and influence spending

Strengthening arguments eg Reframe systemic debates by countering negative influence narrative campaigns, such as those that stake job creation on the need for continued fossil fuel sector subsidies.

Comment: A journey of a thousand miles begins with a single step. (Lao Tzu)

From and beyond the podcast

👉 Big news from Mark Lewis, who was guest number two on New Climate Capitalism last year. He’s going to work for oil hedge fund manager Pierre Andurand ahead of the launch of a new environmentally focused fund.

The FT described this as yet another signal that the energy transition is driving change across every part of the oil industry.

In case you missed the episode, catch up here to learn how Mark’s lifelong love of Shakespeare inspired his work on climate change.

👉 Don’t miss our latest episode on sustainability education for CEOs from Lisen Schultz at the Stockholm Resilience Centre. We had a thought-provoking discussion on the challenge of transitioning from a performance to a sustainability mindset.

Of particular revlevance to this newsletter, Lisen weighed in on corporate lobbying.

Make an analysis of what policy shifts need to happen in order for sustainability to be the obvious choice. And how can you influence that? How can you align your lobbying – that most companies do anyway – with lobbying for a more sustainable world?

There are often more things that you can do as a company than you maybe think in order to shift that larger playing field as well to make the most sustainable services also the obvious choice for everyone. 

Next on the podcast we’re going to be talking about the role of the media in covering green finance, and taking a hard look at the scorecard when it comes to filtering out greenwash.

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