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“1.5°C isn’t Dead,” Says IEA’s Birol

PRI conference hears calls for public-private collaboration to allocate more capital to climate mitigation and adaptation goals.  

Despite concerns that the net zero transition is happening too slowly, the International Energy Agency’s (IEA) Executive Director Fatih Birol has insisted that “1.5°C isn’t dead”, provided there is increased collaboration between investors, governments and companies globally. 

“The 1.5°C window is getting narrower, and it is going to be challenging, but it is still achievable through international collaboration,” Birol said at the Principles for Responsible Investment (PRI) ‘In Person and Online’ event. “In particular, if we don’t support emerging markets and developing economies (EMDEs), we will only deepen the geopolitical divide.” 

Fears that opportunities were fading to keep climate change to 1.5°C above pre-industrial levels were heightened recently when the cover text agreed at the end of COP27 failed to strengthen existing intergovernmental commitments to transition from fossil fuels.  

Investors speaking on the panel in Barcelona said that achieving net zero also depended on upscaling blended finance solutions and climate adaptation finance. 

“Part of the driver for increased investment [in climate solutions] is unfortunately also the increased intensity and frequency of physical climate risks,” said Wendy Cromwell, PRI Board Member and Vice Chair of investment manager Wellington Management. “As more people are impacted by climate change, the more change is being demanded across the board.” 

She pointed to the flooding in Pakistan, noting that “50 years of development finance was wiped out”. 

“We need investments in EMDE climate adaptation solutions in order to secure mitigation investments on an ongoing basis, which is a tricky thing to navigate,” Cromwell said. 

Collaboration on climate adaptation was a core theme at COP27, with the Sharm El Sheikh Adaptation Agenda outlining 2030 targets, including protecting food and agricultural systems, infrastructure, and oceans and coastal zones 

Upscaling nature-based solutions (NbS) was identified as key to increasing climate resilience in the most climate-vulnerable parts of the world, with a number of initiatives launches at the summit.  

The Enhancing Nature-based Solutions for an Accelerated Climate Transformation (ENACT) partnership was co-launched by the COP27 Presidency and International Union for Conservation of Nature (ICUN) and will serve as a hub for governments and non-state actors to align global efforts to upscale NbS to enhance protection against climate impacts. 

Complementary roles  

Wellington’s Cromwell acknowledged that providing the finance needed to fund climate adaptation required an overhaul in areas of public and private sector collaboration, including blended finance.  

“We haven’t fully brought to bear the benefits or the potential of blended finance,” she said. “And I think it’s because we’re not thinking about what each player is good at.” 

Blended finance refers to development finance from public financial institutions upscaling sustainable projects or companies to then attract private investment. Climate adaptation remains an “underdeveloped area” of blended finance transactions, according to recent research by global network Convergence. 

The remit of an asset manager is to deliver returns for clients like asset owners, Cromwell said, meaning that they have developed expertise in micro-analysis of investment opportunities and company performance. In comparison, development finance institutions (DFIs) are considering broader country-level risks. 

“In blended finance, could we create a better stratification of risk, where DFIs help to eliminate some of the risks traditional asset managers are less comfortable with so that DFIs can then benefit from asset managers’ comparative advantages in understanding sustainable projects, the companies, and investment opportunities?” 

Multilateral development banks (MDBs) are also increasingly recognising their role in upscaling blended finance. A group of MDBs made a joint statement at COP27 pledging to expand their support for countries’ climate transition efforts by mobilising blended finance vehicles. 

A “turning point in history” 

Chairing the discussion, Nathan Fabian, PRI’s Chief Responsible Investment Officer, highlighted the geopolitical context for growing concern that 1.5°C is falling out of reach.  

2022 has been a “dramatic year”, he said, in which food, energy and health crises have disrupted global efforts to reduce greenhouse gas (GHG) emissions, even as there have been positive shifts towards upscaling clean energy.  

Despite aforementioned progress, COP27 ultimately “did not close the policy delivery gap” he added, warning that the world is on a warming trajectory that will surpass 1.5°C unless more drastic climate policies are introduced and climate finance massively increased.  

In October, the Inevitable Policy Response (IPR), a climate forecasting consortium, published its latest quarterly assessments of climate-related policies by global governments. It said that the policies in place are not enough to limit 1.5°C, but are actually closer to realising a 1.8°C rise by 2050. The UN Environment Programme Emissions Gap report said pre-COP27 policies will limit global warming to 2.4-2.6°C by 2100.  

The IEA’s Birol said there are three main factors that can drive net zero success: energy security concerns prompting more investment and upscaling of domestic clean energy capacity, a growing number of climate commitments made by governments, companies and investors, and increasing industrial policy, with governments financially incentivising clean energy manufacturing to remain commercially competitive. 

“I believe 2022 will be a turning point in history for accelerating the global clean energy transition,” said Birol. 

The US Inflation Reduction Act (IRA) was highlighted as an example of a positive momentum shift in global climate policy, earmarking around US$370 billion for domestic clean energy manufacturing and mobilisation.  

“The aggregate global 1.5°C goal is not equivalent to a net zero by 2050 target for every country, every company or every investor for international equity reasons,” said Fabian. “To enable the speed of transition required, developed economies and their investors must move first.” 

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