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Climate change and the financial sector - New trends in the financial sector
Scaling up Low-Carbon Investment in Europe
By Karmali Abyd - Managing Director, Climate Finance, Bank of America Merrill Lynch
COP 21 changes how the business and financial community need to address climate-related risks. Post-Paris, the EU reaffirmed its commitment to scale up finance for investment in low-carbon and climate-resilient infrastructure. Its investment needs are around €200 billion/year until 2030, and EU policymakers could help improve the attractiveness of low-carbon investments to institutional investors. The following considerations could help spur investment to accelerate the transition to a low-carbon, new energy economy:
Reporting of Climate-Related Risks
Standardisation in disclosure and reporting of climate-related risks will enable investors to better identify, price and manage risks, and encourage a shift in capital from high to low-carbon. The EU could also shape the G20 approach in this area by aligning the EU’s Non-Financing Reporting Directive with the G20 Task Force on reporting of climate-related risks.
Securitisation is critical for refinancing clean energy and transport infrastructure because it can recycle capital faster into new low-carbon investments, and allow a smooth transfer of risk from project sponsors to institutional investors. Scaling up green-asset backed securities will boost the rapidly maturing green bond market. CMU should support structures that enable warehousing, pooling and securitisation of low-carbon assets.
EU policymakers could help improve the attractiveness of low-carbon investments to institutional investors.
The EIB’s Project Bonds Credit Enhancement facility is an example of how to raise credit ratings of project bonds and attract investors, although it targets energy/transport networks. The Investment Plan for Europe should prioritise investment in renewable energy, energy efficiency, rail transport and electric vehicle charging infrastructure, and include a project bond facility that would provide a protective layer of subordinated debt for green project bonds.
Bank of America Merrill Lynch has insights from each of these areas in low-carbon finance through our 10-year, $125 billion environmental business commitment, and looks forward to collaborating with institutional investors and EU partners to achieve a scale-up in financing and to help support a transition to a low-carbon economy.