“Climate change is one of the most pressing issues of our time.”
Stephen Mallowah, TripleOK Law
Financial and legal experts agreed on the urgency of climate change and declared their desire to be part of its solution, during two dialogues convened by the UN Environment Programme (UNEP). The first event, held in partnership with Kings College London at their campus during the beginning of 2019, was a round table composed of: financial and legal professionals from the private sector and specialist non-governmental organizations, public finance institutions’ representatives (notably from the Bank of England and the Central Bank of France) and academia. The findings of this discussion resulted in the UNEP report Legal Readiness for Climate Finance: Private Sector Opportunities. This report was launched in the aforementioned second dialogue, hosted by Standard Chartered Bank Kenya in Nairobi on 7 July. Here, the findings were shared and deliberated by stakeholders similar to the London event, such as the Nairobi Stock Exchange, advocates and Kenya Climate Innovation Centre.
Climate Change presents huge financial risks to the global economy. The financial world thus needs to effectively incorporate climate change strategies into their work—already, banks from across the globe have embarked on this process. Standard Chartered, for example, ended financing on new coal developments and helped structure the world’s first sovereign blue bond—a pioneering bond designed to support sustainable marine and fisheries projects with the government of Seychelles. Central banks and supervisors across five continents joined to create The Central Banks and Supervisors Network for Greening the Financial System (NGFS)—which exchanges knowledge, develops climate change risk management and mobilizes finance towards sustainable economies, on a voluntary basis.
What is legal readiness for climate finance?
Climate finance, or sustainable finance, refers to the money needed to spur on our switch to a low-carbon economy. We cannot rely on governments to supply all this finance as our needs surpass public coffers. Private capital is required.
Legal readiness for climate finance consists of laws, regulation and policy that drives money effectively towards combating our current climate crisis. Though necessary, the field of legal readiness is new and key questions are just emerging. This can be evidenced in the current shortcomings of climate finance.
Climate finance shortcomings
“Those with money say they cannot find bankable projects and those with bankable projects say they cannot find money.”
Olufunso Somorin, African Development Bank
Firstly, there exists a bias towards mitigation projects rather than adaptation projects. Mitigation schemes, particularly concerning renewable energy, are more bankable—or at least they are viewed as such. This is especially unhelpful as mitigation and low-carbon projects may not be a priority for poor countries compared to adaptation projects such as those that foster sustainable water management.
The climate finance field additionally suffers from a lack of both consensus and guidance, as there are varying standards, definitions and guidelines. To illustrate this, there is ongoing debate as to what constitutes a ‘green bond’ whilst frameworks for calculating risk are not universal. Essentially, there is a lack of standardization and uniformity across the board.
Furthermore, environmental laws from around the world have significant implementation and enforcement gaps which compound the difficulty in implementing legal readiness for climate finance. How can legal readiness for climate finance occur when legal readiness for environmental issues in general is lacking?
Tackling the above issues was discussed and detailed in the UNEP legal readiness for climate finance report.
A key finding was that dialogue between private and public sector as well as academia and civil society is needed to surmount the lack of coordination and agreement. By connecting silos, building a climate finance network and following a multi-disciplinary approach to developing climate finance law, fragmentation and contradiction can be fought. Oscar Njuguna of the Nairobi International Finance Centre echoed this by stating that the public sector can and should learn from businesses; he invited and encouraged the private sector to offer advice and/or their research to their governments to support them in forming regulation.
“Conversation is moving from risks towards opportunities.”
Robert Ondhowe, former legal officer, UN Environment Programme
Additionally, the financial sector needs to move beyond risk: to shift focus from viewing climate change as a risk and towards looking at the opportunities it presents.
Moreover, stakeholders of climate finance need to progress from cursory methods of integrating climate change responsibility and engage meaningfully with its issues. Specific ways of engaging meaningfully, as identified in the dialogues, include: businesses not accepting poorly executed environmental impact assessments, or including climate litigation suits when assessing risk.
Other methods of progressing legal readiness for climate finance identified include: better reporting of climate risks, building capacity of finance and legal experts in understanding how climate change interacts with their work, and providing incentives—both carrot and stick—to private sector.
Legal readiness is relevant for all countries; yet it is especially pressing for developing countries. This is because it encourages not only increased flows of climate finance, but also transparency, clarity, and accountability of several stakeholders by providing an architecture for regulating behaviours and activities. If financial regulators, lawyers, lawmakers, businesses and climate change bodies come together, they can discover and create an enabling environment for climate finance.