The election of Donald Trump as President of the United States comes at a time where the world needs more engagement in climate policy. Unfortuantely, it also threatens to derail the world’s efforts to keep global warning below 1.5oC. The good news is that financial markets' interest in low-carbon and resilience finance can help counter-balance the expected scaling back of U.S. engagement.
First, we anticipate a hard stop or slow down of U.S. efforts to reduce greenhouse gas (GHG) emissions, starting with the Clean Power Plan, mired in court since 2015, but also including other environmental regulations on air, water and land conservation. The incoming administration will likely face legal challenges since the Supreme Court mandated the EPA to regulate GHG emissions under the Clean Air Act, but these typically unfold over years and the EPA can also count on industry-led lawsuits to help bring down some existing or in-progress regulations.
Second, we expect a sharp budget cut for the EPA, but also for development aid related to climate change (the U.S. is an important contributor to development finance institutions like the World Bank and the Inter-American Development Bank) and grants and subsidies to support local government. The Obama White House has been instrumental in providing concrete support and resources on adaptation and resilience, in particular with the Climate Data Initiative and the Climate Resilience Toolkit – the future of these programs is now called into question. Trump may also consider cutting funds for critical agencies like NOAA and NASA, which could impact long term climate data collection and analysis, similar to what we experienced in 2013 with the 'sequester.'
Third, the U.S. will likely shift from being a driving force for a strong global climate agreement to becoming a negative influence. This may provide an excuse for other countries to slow down their own efforts. While the future of the Paris agreement is not called into question even if the U.S. withdraws, the effectiveness of multilateral efforts will be undermined by the absence of the second largest emitter in the world at the table. It is unclear at this point if the EU and China can and will jointly take over that leadership role, but together they could provide a stabilizing influence and governments in both regions take climate change very seriously.
The private sector’s support is also going to be needed for adaptation and resilience. Disengagment from climate policy at a time where each year breaks new heat records, and 2016 is already locked into the hottest year ever on record does not bode well for the future.
UNEP estimates the financing needed for adaptation will be at least $100B a year, while current adaptation funding from multilateral organizations hovers around $25B a year. While there is a strong consensus over the need to bring more private capital into adaptation and resilience investments, meaningful flows are yet to materialize.
The paper confirmed a high level of awareness among participants, with 70 percent of private investors surveyed declaring they see both risk and investment opportunity from the impact of climate change. Seventy-eight percent of respondents thought evaluating the physical risk from climate change was “very important,” and over 60 percent confirming that they were already, in fact, considering climate risk in their investment portfolio. The lack of a common approach to measuring climate risk, however, was identified as a critical barrier, with respondents calling for a transparent, practical approach to assess physical climate risk.
GARI also brought attention to investors’ interest in opportunities for investments in adaptation and resilience. Seventy percent of participants indicated they would consider making investments that supported adaptation to climate change or climate change resilience now. The paper catalogs various investment types, including existing infrastructure, corporate, and fixed asset investments that support adaptation and resilience to climate change. Over 60 percent of respondent investors are considering investments today in resilient infrastructure and in companies whose products address the impact of climate change on water, agriculture, healthcare, energy, and financial services.
Not all adaptation projects are suited to private sector investments however, and banks will not replace governments in investing in social capital, development projects and lifting the most vulnerable out of poverty. But leveraging and guiding financial flows towards projects that enhance economic and social resilience create a win-win opportunity and a powerful way to continue to make progress towards a low-carbon and resilient world in spite of political headwinds.
Image credits: Harout Arabian, WRI, 427mt
Emilie Mazzacurati is CEO of Four Twenty Seven (www.427mt.com), an award-winning market research and advisory firm that brings climate intelligence into economic and financial decision-making. Founded in 2012 and based in the San Francisco Bay Area, Four Twenty Seven helps Fortune 500 companies, investors and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain.