GLOBAL OBSERVATORY ON NON-STATE 2020 CLIMATE ACTION FINANCE REPORT GLOBAL SYNTHESIS REPORT ON CLIMATE FINANCE ASSESSING FINANCIAL ACTORS’ CLIMATE ACTION © shutterstock© PUBLISHED BY CLIMATE CHANCE ASSOCIATION & FINANCE FOR TOMOR- ROW - OCTOBER 2020 Quotation CLIMATE CHANCE & FINANCE FOR TOMORROW (2020). GLOBAL SYNTHESIS REPORT ON CLIMATE FINANCE. GLOBAL OBSERVATO- RY ON NON-STATE CLIMATE ACTION _________________________________ The content of this publication may be reproduced in whole or in part for educational and non-profit purposes without special permission from the copyright holder, provided that the source is acknowledged. The data used is the responsibility of the cited source, the Association Climate Chance & Finance for Tomorrow can not be held responsible for their inaccuracy. _________________________________ AUTHORS Maria Scolan, Advisor to the President the Institute for Climate Econo- mics (I4CE) Emilie Marbot, Senior Consultant Finance & Environment at I Care & Consult The authors benefited from valuable comments received from Michel Cardona, Senior Advisor - Financial Sector, Risks and Climate Change, I4CE, Institute for Climate Economics PUBLICATIONS DIRECTORS Ronan Dantec, President of Climate Chance Thierry Déau, President of Finance for Tomorrow EDITORS FOR OBSERVATORY PUBLICATIONS Amaury Parelle, Coordinator Antoine Gillod, Research officer PRESS CONTACT Virginie Foucault-Rougé, Communication officer [email protected] GRAPHIC CREATION AND LAYOUT Elaine Guillemot WWW.LATELIERDELESTUAIRE.COM ENGLISH TRANSLATION Rachel Zerner EDITORIALS ������������������������������������������������������������������������������������������������������������������������������������������ 5 CLIMATE FINANCE SYNTHESIS REPORT 2020 - INFOGRAPHIC ������������������������������������������� 6 INTRODUCTION ���������������������������������������������������������������������������������������������������������������������������������� 8 The risks associated with climate change 1. Some progress on integrating climate change into the decisions of financial actors ������������������������������������������������������������������������������������������������������������������������������������������������������������������������������11 2. Financial regulation and oversight are accelerating trends ���������������������������������������������29 3. Green finance: beyond the climate ......................................................................................................34 CONCLUSION �����������������������������������������������������������������������������������������������������������������������������������40 Recent trends in green finance GLOBAL SYNTHESIS REPORT ON CLIMATE FINANCE - CLIMATE CHANCE OBSERVATORY - OCTOBER 2020 •3 EDITORIAL Ronan Dantec PRESIDENT OF CLIMATE CHANCE ASSOCIATION With the 5th anniversary of the Paris Agreement “With this publication, the just days away, this 3rd edition of the report jointly produced by Climate Chance and Finance for Climate Chance Observatory Tomorrow reflects a growing awareness on the continues its mission of part of financial actors of their major role, not tracking how efforts evolve, only in the low-carbon transition of the real eco- nomy, but also in factors crucial to its success: the assessing the credibility of protection of biodiversity and the social impact actors’ strategies in relation of investments and financial products. to international climate With this publication, the Climate Chance objectives, and observing Observatory continues its mission of tracking how efforts evolve, assessing the credibility of the reality of the actions they actors’ strategies in relation to international committed to” climate objectives, and observing the reality of the actions they committed to. shared indicators. It does, however, bear witness to an increasingly decompartmentalised and This report sheds light on how risks are taken global understanding of the climate challenge. into account in the decision-making and strate- gies of the various actors involved: banks, insu- To this end, financial regulators have a major rance companies, public and private investors. role to play and are coming into their own. For one It also examines to what degree their choices thing, they are cooperating much more than in are consistent with the scale of climate change 2018 to help the financial industry improve the cli- impact already perceptible for many of them. mate parameters of their financial performance. They have also strengthened disclosure require- Each year, the report analyses in greater detail ments. Taxonomies developed by the European the need for action from the financial sector Union, China and Canada can potentially serve consistent with climate and environmental issues. the reallocation of funding and investments. We The tools to measure contributions to the Paris will be attentive to this in upcoming reports, as Agreement are being put in place and are contri- we are convinced that without strategic align- buting to strong market dynamics favouring the ment on the part of financial players, we will not development of green bonds, green financing, succeed in addressing the main challenges of sustainable debt. climate and development. Consideration for the UN’s Sustainable Development Goals (SDGs) and for the positive impacts of investment decisions is taking shape, but still struggles with the lack of a benchmark or •4 GLOBAL SYNTHESIS REPORT ON CLIMATE FINANCE - CLIMATE CHANCE OBSERVATORY - OCTOBER 2020 EDITORIAL Thierry Déau PRESIDENT OF FINANCE FOR TOMORROW I am pleased that, for the third year running, have decided to make collective commitments Finance for Tomorrow has the honour of contri- such as ceasing to finance the coal sector and buting to the annual Financial Sector Climate increasing the green, or sustainable, part of our Action Synthesis Report published by Climate activities. And we are reporting publicly on our Chance. efforts. This is the purpose of the Observatory for Sustainable Finance, launched in October this This report retraces the impressive progress year, on the occasion of the 6th Climate Finance made by the financial sector over the past 5 years, Day, by Finance for Tomorrow and professional on a global scale. I am pleased to note the matu- federations from the sector, with support from rity of French financial players individually and, the European Commission’s Life program. This collaborative and singular endeavour will be “I hope that this review of fully rolled out over the next five years. It already climate finance will contribute provides free, online access to individual commit- ments by actors from the Paris Financial Centre to understanding the efforts and to consolidated numbers grouped according made around the world and to the sector’s main divisions. Year after year, it will provide a record of how well commitments the major trends that will drive are being met and will be enriched with further green and sustainable finance indicators. in the years to come” Finance for Tomorrow is fortunate in having the opportunity to present innovative approaches collectively, that of the Paris financial market, such as this and to learn about innovations from spearheaded by its green and sustainable other green financial centres worldwide as part finance initiative, Finance for Tomorrow. We are of the international network Financial Centers not the only ones, of course; international mobi- for Sustainability (FC4S), supported by the UNEP. lisation and collaboration between and among I believe that this joint mobilisation of finan- financial centres are essential. The topics Finance cial centres is a catalyst for individual progress for Tomorrow is working on coincide with the among players, and thus a driver of the much new frontiers identified by this review: financing needed redirection of capital towards of sustai- biodiversity, incorporating a social dimension, nable development. green fintech, alignment with the objectives of the Paris Agreement, transition finance and more. I hope that this review of climate finance will contribute to understanding the efforts made This assessment should not, however, obs- around the world and the major trends that cure the shortcomings, inconsistencies, and the will drive green and sustainable finance in the current difficulties in understanding the impact years to come. of climate finance. To address this we, in Paris, GLOBAL SYNTHESIS REPORT ON CLIMATE FINANCE - CLIMATE CHANCE OBSERVATORY - OCTOBER 2020 •5 CLIMATE FINANCE SYNTHESIS REPORT Transparency on climate-related 2020 risks and opportunities “2019 Support TCFD’s recommendations key figures 1,000 “committed to of climate SUPPORT applying its climate reporting framework finance” INCLUDING in whole or in part” 500 IN FINANCIAL- SECTOR Source: TFSB TCFD, February 2020 Institutional investors and asset managers 2016 2019 2016 2019 “Climate finds a place in asset 25% 35% 29% 40% management...” 35% ARE REDUCING EXPOSURE 40% TAKE CLIMATE ISSUES INTO TO FOSSIL FUELS, ACCOUNT IN FINANCIAL DECISIONS, VS. 25% IN 2016 VS. 29% IN 2016 2018 2019 “...But climate 27% is not yet a 10% 17% 9% 15% 14% strategic issue” 17% INTEGRATE CLIMATE 15% SET CLIMATE- 27% CONDUCT INTO THEIR ASSET RELATED TARGETS, CLIMATE-RELATED ALLOCATION, VS. 9% IN 2016 SCENARIO ANALYSIS, VS. 10% IN 2016 VS. 14% IN 2018 Source: PRI snapshot of some 1700 investors and asset managers, 2019. Banks “Banks perceive climate- “...but have room to improve Financing