A BRIEF INTRODUCTION M. Rozani Osman December 13, 2020 The formal definition • Climate finance refers to local, national or transnational financing – drawn from public, private and alternative sources of financing – that seeks to support mitigation and adaptation actions that will address climate change. (UNFCCC) • It means financing that aims to: • reduce emissions • reduce our vulnerability to negative climate change impacts • maintain/increase our resilience to negative climate change impacts • Basically, financing for projects that are good for the environment • Many labels – green, social, sustainability, SDG, SRI, blue, ESG, transition, etc. • “What does it have to do with me?” • “Am I already involved in Climate Finance?” 1 Source: UNFCCC If you do, then you are indirectly already involved in climate finance 2 Source: UNFCCC The future is green 3 Source: Reuters, The Driven, The Guardian, Bloomberg, Forbes 4 Source: TheEdgeMarkets, OCBC Al-Amin; Photo credit: PNBMV 5 Sources: UNDP, UNFCCC, Khazanah, The Edge Markets, FTSE, Telefonica, Government of France Each Theme has a different definition of how proceeds can be used • Green* – positive environmental outcome • Sustainability* – positive environmental AND social outcomes • Blue* – marine & ocean-based projects with positive environmental outcomes • SDG** – aligned with some or all of the Sustainable Development Goals • Sustainable and Responsible Investment (SRI)** – green, social, sustainable, SDG • Social – positive social outcome * involves climate finance ** might involve climate finance (depends on the underlying) 6 Global, Regional, National 7 Sources: ICMA, ACMF, UNDP, CBI, SC Independent verification by 3rd parties – usually voluntary, sometimes mandatory 8 Sources: CICERO, RAM Sustainability, Sustainalytics, CBI Positive Environmental Outcome • Clean & Renewable Energy • Green buildings • Energy Efficiency • Public Transport • Clean River projects • Water treatment • Waste management • Green housing • Forestry & biodiversity • Sustainable agriculture 9 Positive Social Outcome • Malaysia example – Khazanah Ihsan Sukuk • Proceeds to fund schools under Yayasan AMIR Trust School Programme • Global examples include funding social services ranging from solving criminal justice issues, to education and healthcare • International Finance Facility for Immunization (IFFIm) issued USD500m “Vaccine Sukuk” in 2014 to finance child immunization and strengthen health systems in the some of the poorest countries in the world, through Gavi, the Vaccine Alliance 10 Sources: Khazanah Where have I heard that name before? 11 Sources: Gavi, Code Blue, Malay Mail Announced in the Budget 2021 Speech on Nov 6, 2020 12 Source: Ministry of Finance Just in these 3 countries alone… Indonesia Philippines Vietnam • Investments for low- • New green buildings, • Transportation carbon, resilient ports, rail, waste and transport will infrastructure needs of roads, estimated at nearly see investment of US$571 billion by US$20 billion US$57 billion, US$2 2030 • Construction of new green billion, and US$41 • New green buildings buildings will required billion respectively almost US$209 billion represent an almost US$80 billion investment opportunity Sustainable financial tools such as green bonds, play a key role in attracting investment to environmentally-friendly projects 13 Sources: IFC, World Bank Treasury; Photo credit: QSPM What you do with your investments (unit trusts, EPF, etc.) will have an impact • Investor demand drives the creation of sustainable investment funds and ESG investment mandates • Sustainable investing as the new normal (McKinsey) • ESG investors and investment funds are the demand-side to the supply-side represented by the climate finance products (green/sustainable/etc.) 14 Source: CNBC, McKinsey Additional World Bank Group links: • Climate Finance • 3 Things You Need to Know About Climate Finance • Significant Potential to Increase Impact of Climate Finance, New Report Finds • World Bank Group Exceeds 2020 Climate Finance Target for 3rd Consecutive Year - $21.4 Billion in Funding for Climate Action 15 16 Positive Environmental and Social Outcomes • Essentially a combination of Green and Social financing • Malaysia example – Edra Solar Sustainability Sukuk • For-profit renewable energy project and agriculture project for the benefit of the local community • Global examples include World Bank bonds, multinationals such as Alphabet (USD5.75b – Aug 2020) 17 Sources: Khazanah, Alphabet, OCBC Combines various aspects of environmental and social outcomes SDG • Focused on specific SDGs • Malaysia examples – HSBC Amanah SDG sukuk (SDGs 3, 4, 6, 7, 9, 11, 13), CIMB SDG bond (SDGs 8, 9, 10, 12, 13, 15, 16) • Global examples – World Bank bonds (May 2019 issuance: SDGs 2, 5, 13, 16) SRI • Covers in part or in full: Green, Social, Sustainability, SDG • Malaysia examples – various green sukuk, Khazanah Ihsan sukuk, Edra Solar sustainability sukuk 18 Sources: Khazanah, HSBC, CIMB Marine and ocean-based projects with positive environmental outcomes • Inspired by the green bond concept • Seychelles issued the first sovereign blue bond in 2018, supported by the World Bank and the Global Environment Facility • Proceeds to provide financing for marine and ocean-related activities that contribute to the transition to sustainable fishers 19 Sources: IPS • Definitions and Standards are complementary and not mutually exclusive: • PNB Merdeka Ventures green sukuk aligned with Green Bond Principles, ASEAN Green Bond Standards and SRI Sukuk Framework • CIMB SDG bond framework aligned with Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines 2018 and ASEAN Sustainability Bond Standards • Sustainable = Green + Social • Taxonomies serve to clarify and define, usually within a national or regional context • BNM Discussion Paper on Climate Change and Principle-based Taxonomy (Dec 2019) • EU Regulation on the Establishment of a Framework to Facilitate Sustainable Investment (June 2020) • Developing A National Green Taxonomy – A World Bank Guide (July 2020) 20 Sources: PNB, CIMB, BNM, EC