An inside look at pricing in the forest carbon market

March 2, 2021 by  
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An inside look at pricing in the forest carbon market Wilder Person Tue, 03/02/2021 – 00:05 On June 23, Amazon commenced its $2 billion Climate Pledge Fund to further endeavors to become net-zero by 2040. In January 2020, Microsoft committed to invest $1 billion over the next four years as part of their Climate Innovation Fund. And on July 21, Apple committed to become 100 percent carbon neutral across its entire business, supply chain and product life cycle by 2030.  These commitments and investments along with those of other corporations have created an important source of demand and funding for forest carbon. While much of this capital will be used and already has been used for other carbon removal strategies and technologies, a significant portion of it has been and should continue to be available for forest carbon.  But corporations do not just go directly to and pay landowners willing to conserve their forest. Instead, carbon project developers that act as the intermediaries between the two making everything happen.  There’s also a problem: Despite the billions of dollars put forth for carbon removal, the price per forest carbon credit is still not high enough to prompt a critical mass of owners to stop traditional harvesting and start the carbon-credit adventure. Currently, the average price per credit in the voluntary market is about $4 to $6 and in the compliance market it ranges between $12 and $14, according to two companies.  To better understand how forest carbon projects are conducted, the CFN interviewed three carbon project developers, EP Carbon (formerly Ecopartners), Bluesource and Finite Carbon. In spite of their respective success, all three developers have different business strategies. Finite Carbon specializes in forest carbon projects and puts emphasis on understanding landowners’ needs and how carbon strategies can fit into and be a part of forest management. EP Carbon uses innovation and creativity to make carbon projects and their accompanying standards work for an eclectic range of landowners. Bluesource takes on many project types beyond forest carbon and tailors their process not only to landowners but to corporations as well by making marketing a top priority.  At their core the developers use landowners’ property parameters — the diameter at breast height (DBH) of their trees, tree heights and tree species to derive carbon credit totals under different standards. If the landowners think the potential revenue generated by the credit totals is enough and they want to proceed with the project, then the developers will enact the project for them with a contract. Lastly, the developers market and sell the credits to corporations and then return the revenues to the landowners.  Nonetheless, there are various ways to go about doing this. For starters, geographies may vary for each carbon project developer. Central Appalachia and the old pulp and paper regions of Maine, the lake states, northern New England and upstate New York are hot project areas for Bluesource. However, most of Finite Carbon’s projects — 70 percent by volume — are west of the Mississippi River. EP Carbon on the other hand, takes a much more international approach. It has conducted projects in the United States as well as South America, Central America, Africa, Indonesia, Papua New Guinea and Vanuatu.  Domestically, landowners in the old pulp and paper regions want compensation for their pulp and paper wood without having to cut it. Thus, the price per credit problem is less of an issue in these areas and Bluesource has made a point to capitalize on them. Central Appalachia is also a popular spot for Bluesource because property on mountainous terrain is not heavily managed nor expected to generate tons of revenue, which helps to avoid the price per credit dilemma as well. There is also an abundance of hardwoods in this region, which have more carbon content than pines.  Despite the billions of dollars put forth for carbon removal, the price per forest carbon credit is still not high enough to prompt a critical mass of owners to stop traditional harvesting. EP Carbon’s focus on the international voluntary market has led it to using different standards and protocols from Bluesource and Finite Carbon. It tends to use Verra’s Verified Carbon Standard (VCS), which is more geared for international and REDD+ projects, whereas Bluesource makes more use of the American Carbon Registry (ACR) Standard for their abundance of voluntary projects. And Finite Carbon leans more on the California Compliance Standard, as it conduct more compliance projects.  The VCS and many of EP Carbon’s projects are geared toward stopping deforestation threats and land conversion in the global south. While these projects present their own set of difficulties, focusing on them is an effective way to avoid the typical scenario in which a landowner finds that harvesting their trees is more profitable than a carbon project.  Finite Carbon has a different way of dealing with this problem. Unlike Bluesource and EP Carbon, Finite Carbon specializes in forestry carbon projects. This strategy is baked into Finite’s staff as well. Many worked in conservation or forestry before coming to Finite. “Having focused solely on forestry projects, Finite has a grasp on forest management, land use protection and conservation,” said Dylan Jenkins, vice president of portfolio development at Finite Carbon. Taking this approach has allowed Finite to really understand landowners and given them a knack for implementing carbon strategies into landowners’ pre-existing management regimes. This is something that developers struggle with, as many landowners do not want to change their preset regimes nor like the idea of having their trees or part of their property locked into a long-term agreement. Making carbon projects more convenient for landowners and figuring out how they can exist in harmony with their harvests has allowed Finite to overcome these problems and the price per credit dilemma on many properties.  In contrast, Bluesource has seen their own advantages by conducting additional carbon project types, such as Ag Methane, Acid Gas Injection, Energy Efficiency and Renewable Energy and Carbon Capture. “This has allowed Bluesource to not only expand their buyer network but to have more set-in-stone buyers as well,” said Aaron Paul, director of forest carbon origination at Bluesource. Taking on a range of carbon credit projects also gives Bluesource the ability to make entire footprint reports for their clients.  Similar to Bluesource, EP Carbon goes beyond forestry and includes grassland, shrubland, wetlands, mangroves, dry land savanna, and water or blue carbon projects. Some of these projects are done on their own but EP Carbon also combines them with forest carbon projects when appropriate. This allows EP Carbon to generate more revenue for landowners and to make the projects more attractive for them than just harvesting their trees.  EP Carbon also makes a point to be very flexible when it comes to standards. While it makes use of the VCS for international projects, it does not wed themselves to any one standard. It uses whichever standards are the best fit for their clients for each project even if the standards would not customarily be used for the given projects. Unlike many developers, EP Carbon pushes the standards to the limit and bends them to make them work for its projects, despite the standards’ strict constraints. “Our projects are more experimental and creative; they push the boundaries of the field,” said Zach Barbane, director of projects and operations at EP Carbon. This EP Carbon approach is effective for incorporating more landowners and is another way to overcome low prices per credit.  Bluesource and Finite take a very different and much more systematic approach. Nonetheless, Bluesource controls most of the United States’ voluntary market. Likewise, Finite has procured 45 percent of all California Compliance forestry offsets, which makes up 37 percent of all California Compliance offsets. (Both work in both forms of markets.) By sticking to the same standards and perfecting their compliance to them, both developers have become accustomed to applying standards to various properties. This has allowed Bluesource and Finite to make carbon projects work for a lot of landowners.  Unlike many developers, EP Carbon pushes the standards to the limit and bends them to make them work for its projects, despite the standards’ strict constraints. Yet the price per credit dilemma still keeps many landowners from implementing carbon projects. One of the main underlying problems that amplifies this dilemma is that small landowners with less than 5,000 acres typically cannot overcome the inventorying and verification costs associated with carbon projects.  To address this issue, EP Carbon developed an app and separate company, Forest Carbon Works (FCW). The app allows for the proper tree measurements for carbon projects to be taken on a smartphone. This has reduced the inventorying costs associated with the projects, making them more accessible for those with less land. As a company FCW also gives special attention to small landowners and tailors its process and services to their forest carbon needs. FCW has been verified by the California Air Resources Board and has enabled many landowners to pursue carbon projects. EP Carbon should feel good about using its innovative thinking to help bring small landowners to the carbon table. Finite Carbon has also made an effort to reach small landowners with its new small business and device, CORE Carbon. This digital platform estimates the amount of carbon that is in a given forested area with a general geospatial outline of the property and remotely sensed data.  Accordingly, with CORE Carbon boots on the ground inventorying is not required and forest carbon projects are much more affordable for small landowners. Unfortunately, even if both new technologies scale and inventorying becomes significantly cheaper, an average of about $10 per credit still will make harvesting more attractive for many both small and large landowners. Even large scale timberland investment management organizations (TIMOs) with millions of acres of land are not ready to implement carbon projects on their properties. Many TIMOs think at $10 a credit, harvesting is just the more economic decision.  Nonetheless, EP Carbon, Bluesource and Finite Carbon have all found unique ways to circumvent the low price per credit predicament and implement carbon projects despite it.  Bluesource has conserved more than 2.3 million acres of forested land and has generated over $182 million of revenue for landowners. EP Carbon has protected over 13 million acres of forested land and abated more than 260 million tons of carbon. And Finite Carbon has conserved more than 3.1 million acres of forested land and has produced over $720 million of revenue for landowners. But think about all of the tons of carbon that these three developers could abate and all of the acres of forest land they could conserve if the price per credit were higher.  Pull Quote Despite the billions of dollars put forth for carbon removal, the price per forest carbon credit is still not high enough to prompt a critical mass of owners to stop traditional harvesting. Unlike many developers, EP Carbon pushes the standards to the limit and bends them to make them work for its projects, despite the standards’ strict constraints. Topics Finance & Investing Carbon Removal Forestry Forestry Carbon Pricing Conservation Finance Network Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off To date the price for a ton of forest carbon has stayed stable, making growth tricky. //Image courtesy of Conservation Finance Network.

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An inside look at pricing in the forest carbon market

How Wall Street can win on climate In 2021

January 25, 2021 by  
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How Wall Street can win on climate In 2021 Ben Ratner Mon, 01/25/2021 – 01:00 This year, financial institutions must make a significant leap forward on climate — from pledges to progress. Even amidst a global pandemic, 2020 proved climate finance and a focus on environmental, social and governance (ESG) issues are more than passing fads, with net-zero financed emissions commitments from Morgan Stanley , JP Morgan  and a group of 30 international asset managers —  Net Zero Asset Management Initiative   — with $9 trillion in assets under management. At the start of 2021, leading investors openly recognize that climate change presents a massive systemic risk and a multi-trillion-dollar opportunity. But for the vast majority of firms, the real work of implementing climate and ESG integration is ahead. With increasing public, government and shareholder attention on climate, here are three ways sustainable finance leaders will emerge in 2021. 1. Integrate climate into core business A 2050 net-zero vision may be an inspiration, but it is not a plan. To realize its ambitions, Wall Street must integrate climate into its core business, evolving its approach to capital allocation and changing its relationships with carbon-intensive industries. Asset owners will demand no less of asset managers. This transition will require a far sharper focus on short-term, sector-specific benchmarks tied to decarbonization pathways — starting with the high-impact industries that matter most for solving the climate crisis.  For example, in the oil and gas sector, investors can assess progress and pace toward net-zero by monitoring companies’ methane emissions, flaring intensity, capital expenditures, lobbying and governance. Concentrating on five key metrics over a five-year period will allow investors to distinguish climate leaders from laggards. As with other core financial issues, monitoring metrics is just the start. To advance their climate commitments, investors should pair metrics with accountability. For asset managers, corporate climate performance should strongly inform investment stewardship, proxy voting and fund construction. For banks, climate benchmarks should influence loan eligibility, interest rates and debt covenants. Wall Street knows how to set quantitative targets and factor corporate performance and risk into financial decisions — now climate must become part of the new business as usual. 2. Align proxy voting with climate goals Advancing sustainable investing in 2021 will also necessitate a shift in proxy voting among the world’s largest asset managers. Last year, BlackRock and Vanguard voted against the vast majority of climate-related shareholder proposals filed with S&P 500 companies. BlackRock opposed 10 of 12 resolutions endorsed by the Climate Action 100+ , a coalition it joined last January, and later signaled an intention to support more climate votes in future years. There’s a better way. Both PIMCO and Legal and General Investment Management supported 100 percent of climate-related proposals filed with S&P 500 firms during last year’s proxy season, sending a powerful message to CEOs about the materiality of climate risk. As asset managers around the world unveil new ESG products and brand themselves as sustainability pioneers, proxy voting will become the litmus test for climate authenticity in finance for 2021.   3. Support regulations and policies required to decarbonize While the finance community has traditionally taken a hands-off approach to public policy advocacy, industry norms are changing . Investors understand that scaling the climate finance market depends on Paris-aligned government action, and some have proven willing to engage on issues ranging from carbon pricing to methane standards . With the incoming Biden administration prioritizing climate, investors should double down on climate-friendly advocacy , supporting both financial regulations and regulations of carbon-intensive sectors consistent with a 1.5 degrees Celsius scenario. As BlackRock CEO Larry Fink has emphasized, updated regulation of the financial system is needed to help monitor and manage economy-wide climate risks. As linchpins of capital markets, banks and asset managers have a crucial role to play in pushing federal agencies to safeguard the economy from climate-related shocks. For example, supporting rigorous mandatory climate risk disclosure from the SEC and appropriate ESG rulemaking from the Department of Labor can help investors build Paris-aligned portfolios. However, investor-led policy advocacy cannot end with financial regulation. As the Global Financial Markets Association noted , reaching net-zero by 2050 involves both financial regulation and environmental regulation of carbon-intensive sectors. The right mix of emission standards and incentives can slash pollution, drive technological innovation and improve the economics of low carbon investments. Given the rise of passive index investing, supporting government action in carbon-intensive sectors is essential, as leading financial firms favor continued investment over sector level divestment. In particular, policies and regulations to cut methane emissions and flaring, to accelerate vehicle electrification and to clean up the electric grid should be top priorities in 2021. Contributors Gabe Malek Topics Finance & Investing GreenFin Investing Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off

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How Wall Street can win on climate In 2021

Ambitious partnerships on climate action are taking root and bearing fruit

January 25, 2021 by  
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Ambitious partnerships on climate action are taking root and bearing fruit Dominic Waughray Mon, 01/25/2021 – 00:30 Buried beneath the dour daily headlines on COVID-19 infections, lockdowns and travel bans, the latest science about our planet released during 2020 makes for tough reading. Despite the reductions in air travel and the global economic slowdown caused by the pandemic, climate change sadly has not slowed down this past year. We have only until 2030 to  get things on track  for a net-zero and nature-positive economy — this should sharpen our minds for action. Unfortunately, as the economic effects of COVID-19 cause government debts to rise sharply, there is now much less public money available for activities like climate protection or ecosystem restoration — this should sharpen our appetite for innovation. How then to make the shift to a net-zero, nature-positive economy within the decade? If there is good news, it is this: The pandemic has shown that when our backs are against the wall, incredible things are possible. The partnerships catalyzed between governments, scientists and the private sector to produce a suite of new vaccines within 12 months are a remarkable testament to our ability to innovate at scale, fast, when we feel we must. The state of the planet 2020 was, along with 2016, the joint hottest year  on record ever — closing out the warmest decade on record ever. Global average temperatures are now about 1.2 degrees Celsius above pre-industrial levels. This is getting uncomfortably close to the 1.5 degrees C cap on average warming that governments pledged to aim for when they signed the 2015 Paris Climate Agreement to avoid dangerous climate change. What  scientists observed during 2020  should worry us all. In the Arctic,  temperatures  are rising at twice the global rate.  Floods  affected more than 10 million people across China, India, Nepal, Japan and Bangladesh, and there were a record 29 tropical storms in the Atlantic, with a record 12 making landfall. Unprecedented wildfires raged across  Australia  and California, with the Australia fires releasing about three-quarters of the CO2 that the country’s industry emitted in 2018-19. The key for 2021 will be to supersize the good examples of these kinds of efforts and bring them together to help shape a decade of unprecedented partnership and action to 2030. Less visibly,  more than 80 percent of the ocean in 2020 suffered marine heatwaves , providing more energy for tropical storms, as well as impacting sea life and spoiling fish harvests for the billions of people who rely on the ocean for their food and jobs. In June 2020, the United Nations warned of an impending global food crisis, the worst seen for over 50 years, noting the ” perfect storm ” playing out between these environmental changes and the impact of COVID-19, especially for poorer countries. It is no surprise then that the World Economic Forum  Global Risks Report 2021  identifies climate action failure, extreme weather and biodiversity loss, alongside infectious diseases, as the top global risks for the next decade in terms of impact and likelihood. As with COVID-19, perhaps so with climate? The climate and nature crises are now an urgent mainstream issue for many voters, especially among Generation Z. Many  institutional investors  are also seeing the risks and are shifting their money accordingly. Given these voter and investor pressures, an unprecedented level of collaboration and innovation is required among leading “real economy” players from industry, technology and finance, to work together and with government and civil society and make big things happen, fast. Promisingly, for several years, especially since the Paris Climate Agreement in 2015, an ecosystem of ambitious partnerships for action on climate and nature has been taking root and growing, often with the help of the World Economic Forum. We are now able to start reaping the early rewards of this harvest. For example, the  Mission Possible Partnership  gets leading heavy-industry companies, banks and governments to create investment-grade “net-zero” sector strategies in seven key areas of the global economy — aviation, shipping, trucks, chemicals, steel aluminum and cement. More than 200 companies and organizations are so far involved. This effort has the potential to tackle 30 percent of global greenhouse gas emissions. The  Global Plastic Action Partnership (GPAP)  gets leading consumer goods companies, waste specialists and banks to work with governments to create investment-grade plans for tackling plastic waste pollution, and then trigger the finance and projects to make it happen. Launched in 2018 with the Canadian and UK Governments, GPAP is now helping countries across ASEAN and West Africa to tackle ocean plastic waste. GPAP in Indonesia is helping the government deliver its  national target  to reduce ocean plastic waste in Indonesia 70 percent by 2025 and to be plastic waste-free by 2040. 1T.org (trillion trees)  is a partnership platform that gets leading governments, businesses, technology companies, scientists and civil society groups to work together on initiatives that will conserve, restore and grow a trillion trees by 2030. Such “nature-based solutions” like 1t.org , undertaken alongside the decarbonization of energy and industry systems, can help provide up to  one-third of the climate solution  required by 2030 to keep on track with the Paris Climate Agreement. The  1t.org United States Chapter  was launched in August 2020; so far more than 26 U.S. companies, nonprofits and governments have pledged to conserve, restore and grow more than 1 billion trees across the contiguous U.S. by 2030, and committed to supporting actions such as mapping technology and carbon finance worth billions of dollars. In October 2020 the  One Trillion Trees Interagency Council  was established to be responsible for coordinating federal government support of 1T.org in the US and internationally. These and many other examples of public-private partnerships and alliances are helping to accelerate large scale, practical action for a net-zero, nature positive economy by 2030. They connect together states, cities, provinces, civil society groups, businesses, investors, innovators and technologists. They are also connecting business leaders, technology and finance within key industrial sectors and across global supply chains, as companies work with and learn from each other. And they are spurring leadership groups such as the  Alliance of CEO Climate Leaders  to engage with politicians and decision-makers, to further raise ambition and give business confidence to governments about the pathway ahead. Leaders in this CEO group already have net-zero commitments linked to companies with at least 1.5Gt of global emissions as disclosed in 2019. In an age where transparency and authenticity are key, these partnerships and alliances work to deliver their results in line with the latest science, with the companies involved increasingly adopting disclosure and measurement systems like science-based targets and environmental, social and corporate governance (ESG) metrics, such as the common  framework being developed by the World Economic Forum’s International Business Council . Coming together for impact The key for 2021 will be to supersize the good examples of these kinds of efforts and bring them together to help shape a decade of unprecedented partnership and action to 2030. Imagine if we could bring many more companies, investors and governments together into these and other “high ambition” coalitions, underpinned by the science-based targets we must meet by 2030, and designed to drive the net-zero, nature-based transition we must create: this would bring to life a real economy that works for people and nature alike and for the long term. Indeed, one of our recent  Nature Action Agenda reports , identified that such a nature positive transition could generate 395 million new jobs by 2030. That is the kind of “real economy” win-win we sorely need in our COVID recovery plan. Inspired by the incredible public-private sprints on vaccine collaboration for COVID-19 and mandated by the universally accepted United Nations Sustainable Development Goal 17 on revitalizing global partnerships for sustainable development, we must ensure that such large-scale, public-private collaboration for ambitious climate, nature and food security outcomes become mainstream during 2021. These are the partnership vehicles that can bring together industry, investors and civil society to speed and scale impact, drawing on wide networks of innovation, expertise and resources from across the real economy, at a time when public funds are scarce. To spur these efforts, official climate and biodiversity events should more deeply involve government, industry, investors, civil society leaders and other key stakeholders, and be structured as annual “accelerators” focused on scaling the system change innovation, financing, job creation and partnerships required to ensure we are on track to achieve our 2030 goals. Encouragingly, the official climate COP 26 hosted by the UK in Glasgow in November seems to be leaning in this direction. Pull Quote The key for 2021 will be to supersize the good examples of these kinds of efforts and bring them together to help shape a decade of unprecedented partnership and action to 2030. Topics Climate Change Corporate Strategy Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off

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Taking stock of Chase, HSBC, and Morgan Stanley’s recent climate commitments

November 24, 2020 by  
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Taking stock of Chase, HSBC, and Morgan Stanley’s recent climate commitments Whitney Mann Tue, 11/24/2020 – 00:40 Recent months have seen major moves on climate action by some of the world’s largest private banks, including JPMorgan Chase, HSBC and Morgan Stanley. What sets this latest wave of climate pledges by financial institutions apart from past announcements? Building on previous commitments that increase green investments or restrict financing to certain high-emitting activities, recent pledges add to growing evidence that banks are taking a more holistic approach to the climate emergency. Looking across their investments in different sectors and regions, more banks are considering how to reduce the carbon intensity of entire portfolios over time. After all, through their product offerings, lending activities and client engagement, financial institutions can play a key role in influencing the transformation necessary for a net-zero emissions economy. What we have given the market is an ambition that our total financing by 2050 will be net zero. That is a far bigger prize or goal than picking a sub-segment of our portfolio and saying ‘I am not going to bank you’ because that’s not what the world needs. That industry or that customer may then just go to Bank X, Bank Y, or Bank Z. They won’t have changed their business model. — Noel Quinn, CEO, HSBC, in an interview with Reuters on Oct. 9, 2020. While recent commitments signal increased ambition, they vary in content and structure across institutions. RMI established our Center for Climate-Aligned Finance in July to support financial institutions — as well as their stakeholders and shareholders — in overcoming practical challenges to align portfolios and investment decisions with a 1.5 degree Celsius world. As part of this work, the center seeks to bring transparency to the new landscape of climate commitments — discerning barriers to success and pinpointing opportunities to ensure measurable impact from this promising momentum. Climate commitments across institutions may have similar bumper stickers — Paris Alignment, climate alignment, or net zero by 2050 — but what’s under the hood? Unpacking commitments October announcements by JPMorgan Chase and HSBC outline their intended contribution to the low-carbon transition over a given time. Specifically, JPMorgan Chase announced in October that it would shape its financing portfolio in three key sectors to align with the Paris Agreement; three days later, HSBC announced its statement of net-zero ambition . This past year has seen a slew of similar statements, including from Barclays in May — making it one of the first banks to announce ambition to go net zero by 2050 — and then from Morgan Stanley in September. While this blog focuses on a subset of global banks, their commitments are part of a larger movement across the financial sector that includes institutional investors and broader coalitions. Climate commitments across institutions may have similar bumper stickers — Paris Alignment, climate alignment or net zero by 2050 — but what’s under the hood? Below, we identify signposts to help pick apart the differences between similar-sounding commitments. These categories represent critical questions facing a financial institution that has committed or may be looking to commit its portfolio to alignment with a climate goal. Coverage Coverage refers to the business units and financial products included in the commitment to measure, manage and reduce emissions. For instance, several banks have committed to align their lending portfolios. Barclays’ accounting additionally covers the capital markets activity it supports. Coverage also often can be delineated by sectors, such as BNP Paribas’s decision to prioritize decarbonization within its power portfolio, or ING’s inclusion of nine sectors in its annual Terra Report . ING has iterated further by indicating which part of the sectoral value chain is included in the scope (upstream oil and gas rather than trading, midstream, storage or downstream). JPMorgan Chase has committed to a sector-specific approach that will seek to address all emissions, including scope 3 emissions in their priority sectors. Targets and pathways For the designated coverage, commitments are further distinguished by targets (what will portfolio emissions be reduced to and by when?) and pathways (what trajectory will portfolio emissions take over time toward the specified target?). Pathways incorporate technology roadmaps based on a set of assumptions about what the world will look like over time. The extent of decarbonization achievable over time depends on which low-carbon technologies will be available when — projections that hinge on assumptions about investment rates, policies, demographic shifts and beyond. BNP Paribas and Barclays are among the institutions that will use the IEA’s Sustainable Development Scenario (SDS) to guide their energy and power commitments, but many other pathways exist. RMI’s Charting the Course highlights that selecting a pathway from the nearly limitless options presents a key challenge to financial institutions taking meaningful steps toward alignment. Tools for analysis Many analysis tools, methodologies, models and platforms exist to support institutions in understanding where their emissions are today, and how they can transition their portfolios over time. For instance, Morgan Stanley, Bank of America and Citi recently announced their participation in the Partnership for Carbon Accounting Financials (PCAF)  — a coalition working on measuring financed emissions and improving transparency through disclosure. Other tools are more forward looking to support investing that steers portfolios in line with climate commitments over time. For instance, 17 global banks recently piloted PACTA for Banks to analyze their corporate loan books with different climate scenarios and inform future decision-making. And 58 financial institutions have committed to SBTi’s financial sector framework , which helps financial institutions “set science-based targets to align their lending and investment activities with the Paris Agreement.” Disclosure and reporting Disclosure in line with The Task Force on Climate-Related Financial Disclosure recommendations, much like other financial risk disclosure obligations, is critical for transparency and accountability, and to ensure risks are accurately priced in financial markets. There are currently many voluntary standards and frameworks for reporting material factors across sectors, creating a complex landscape and motivating five standard-setting groups — Sustainability Accounting Standards Board, Global Reporting Initiative, Climate Disclosure Standards Board, International Integrated Reporting Council and CDP — to collaborate toward a commonly accepted reporting framework. These existing standards ultimately could inform what disclosure and reporting mandates from forward-looking regulators might look like in the future. Implementation actions How do banks turn statements of ambition into progress along their pathway and, in turn, measurable impact in the real economy? When investing in a world believed to be on track to warm to 4 degrees Celsius, increasing the volume of green finance is essential. However, it cannot in and of itself create the low-carbon world and attendant investment opportunities needed for banks to achieve their climate alignment commitments. Rather, by influencing the availability and cost of capital, banks can more strategically and actively shape the real economy. When investing in a world currently believed to be on track to warm to 4C, increasing the volume of green finance is essential. ” Breaking the Code ,” RMI’s August survey of climate action efforts in the financial sector, outlines different influence levers financial institutions possess. These levers range from designing products to support the transition of high-emitting assets to offering services to support their clients’ transitions. These levers can and should be employed in unique ways across business units and asset classes based on an institution’s particular commitments and individual context. Organizational approach Finally, banks are adopting different organizational responses to support implementation of new products, offerings and services stemming from commitments. One such approach reflects an “embedded” model, wherein responsibility is dispersed across existing business verticals by, for instance, placing a climate expert within a bank’s asset management team. Alternately, banks may opt for a more “centralized” model involving some sort of systemic re-organization around their commitment. A centralized model may involve creating new business units with a dedicated remit spanning the institution. JPMorgan Chase, for example, is launching its Center for Carbon Transition , which will provide clients with centralized access to sustainability-focused financing, offer research and advisory solutions and engage clients on their long-term business strategies and related carbon disclosures. Of course, significant variation exists. Notably, Credit Suisse has adopted a somewhat hybrid approach involving elements of both a centralized and embedded model. JPMorgan Chase has put partnering with its clients in carbon-intensive industries at the center of its new commitment. — Paul Bodnar, Chair, Center for Climate-Aligned Finance JPMorgan Chase is one of the center’s founding partners , alongside Wells Fargo, Goldman Sachs and Bank of America. Next steps The landscape of climate commitments by financial institutions is changing rapidly. At the center, we expect our analysis to broaden and deepen as we work with this sector to first crystallize and then actualize commitments toward climate alignment. Innovation is at the heart of competition among financial institutions, and actions advancing climate alignment should be no different. We expect future analysis to focus on frameworks for enabling comparability across institutions. Our goal is to broaden the path forged by these alignment pioneers, reinforcing their efforts to accelerate change at the scale demanded to meet the challenge of climate change. Pull Quote Climate commitments across institutions may have similar bumper stickers — Paris Alignment, climate alignment, or net zero by 2050 — but what’s under the hood? When investing in a world currently believed to be on track to warm to 4C, increasing the volume of green finance is essential. Contributors Shravan Bhat Brian O’Hanlon Topics Corporate Strategy Finance Banking Collective Insight Rocky Mountain Institute Rocky Mountain Institute Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Photo by  wutzkohphoto  on Shutterstock

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Taking stock of Chase, HSBC, and Morgan Stanley’s recent climate commitments

Hard truths from a decade of investing in regional food systems

September 10, 2020 by  
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Hard truths from a decade of investing in regional food systems Meredith Storton Thu, 09/10/2020 – 02:00 The COVID-19 crisis has highlighted the inequities and fragility of our industrialized food system and accelerated the movement to create strong regional food systems that support local growers, provide food security, give communities agency over their food supply and yield environmental benefits. These systems will remain out of reach, though, unless we address persistent, decades-old structural issues. Price pressures continue to challenge the viability of decentralized food systems and communities of color continue to be underserved — as farmers, food chain workers, supply chain entrepreneurs and consumers. We need to change both who we fund and how we fund if we want to create equitable, thriving regional food systems. What will it take to achieve such massive shifts? RSF Social Finance has been reflecting on that question as we wind down our Food System Transformation Fund, a pooled loan fund launched in 2010 to help rebuild regional processing, manufacturing and distribution infrastructure that was lost as the food system industrialized. Restoring these supply chain links is essential to creating viable regional food systems, yet community-based infrastructure enterprises have limited access to both startup and growth capital. The Food System Transformation Fund attempted to address that problem with program-related investments from foundations, on the premise that risk-tolerant debt could enable early-stage businesses to grow and eventually access traditional capital from banks and community development financial institutions. As we wind down the fund and move our food system investments into other RSF portfolios, we’re sharing what we’ve learned in hopes of advancing efforts to build a regenerative food system. Investors seeking a better food system need to take the time to understand a company’s impact and its beneficiaries, toss out traditional assumptions about market rate returns and ensure that terms benefit communities. Over the past decade, the fund provided $6.5 million in debt to 27 organizations across 14 states. More than 25 percent of borrowers grew into our senior secured loan portfolio or accessed traditional debt, while nearly 20 percent had to cease operations or substantially change ownership. The enterprises between those two poles continue to need patient, flexible and diverse capital structures. That’s not because they’re failing, but because the finance ecosystem has failed to develop tools fitted to the needs of food system enterprises. This truth informs three fundamental insights from our work in the field of food system transformation. 1. In food systems, high impact and high returns don’t mesh Investing in food systems is very different from investing in a trendy plant-based–meat startup or a consumer packaged goods company that can outsource manufacturing and build a brand for sale to a conglomerate. Food system businesses are capital-intensive — they require substantial investment in processing equipment, trucks and warehouses — and they operate in a highly competitive, low-margin sector. Immense price pressure in the U.S. food system compresses gross margins and makes it challenging for food infrastructure businesses to achieve profitability. Our spending on food doesn’t reflect the true cost of production: Americans spend only 9.5 percent of their income on food, compared with 15 percent in Canada , 13 percent in France and 23 percent in Mexico . Most small farms in the U.S. aren’t profitable ; on average they earn only 17.4 percent of every dollar spent by consumers at stores. Workers throughout the industrialized food system face poor working conditions and low wages. Many food system infrastructure businesses are trying to fix these inequities, and it’s imperative for investors to understand the tradeoffs between returning capital to investors and reinvesting that capital into the business and the community. This issue is most glaring with the venture capital model. When venture-backed companies disrupt local food systems and don’t have the longevity or the relationships to create long-term impact, they actually can harm communities. In the worst-case scenario, these companies launch, rapidly scale, seize market share from existing community-based businesses and then run out of cash, leaving the community with less than it had beforehand. Similarly, pulling out high financial returns for investors undermines the positive changes these companies can achieve and puts more pressure on a strained, inequitable system. Investors seeking a better food system need to take the time to understand a company’s impact and its beneficiaries, toss out traditional assumptions about market rate returns and ensure that terms benefit communities. 2. Farmers and communities can’t bear the risk Traditional financing tools are seldom structured in a way that shares risk across the system. When times get tough, capital partners must navigate the delicate balance of principal return to investors versus making farmers and local food systems whole. Traditional collateralized loans place the burden on those least able to bear risk — the community-based enterprise and its stakeholders. The Food System Transformation Fund primarily issued debt backed by collateral — equipment, vehicles and accounts receivable. When portfolio companies had to cease operations, we had to choose between returning capital to investors or letting the company repay farmers and other community partners. Our investors prioritized community well-being, and we were able to forgive debt in these cases, but this is a structural problem that shouldn’t require an 11th-hour solution based on investors’ goodwill. When venture-backed companies disrupt local food systems and don’t have the longevity or the relationships to create long-term impact, they actually can harm communities. One way to distribute risk more equitably is to integrate various forms of capital — financial, social and technical — within the same transaction to support an enterprise. This may mean some combination of unrestricted grants, debt, equity, loan guarantees and forgivable loans. Guarantees can unlock capital that otherwise wouldn’t fund the space and forgivable loans can help businesses prioritize impact, which often takes a back seat to financial return. For example, if the enterprise is meeting its impact objectives but experiencing financial or operational challenges outside its control, the loan can turn into a grant. Funders need to be creative and partner with food system enterprises to find the optimal mix of tools to support the business and its stakeholders. 3. Transforming the system will require philanthropic, public and private capital While there is a lot of interest in food system enterprises, the current funding ecosystem is weak.   The capital needed to build these businesses is hard to come by and even harder to sustain over the long term. The funding is not readily available in many regions where the work is happening, and it is not equitably distributed. As in many sectors, entrepreneurs of color are woefully underfunded. Philanthropic capital, with its flexibility and public benefit purpose, is well-positioned to seed the space and attract other funders. Foundations and donor-advised funds can support this work not only through grant-making but also through investments and leveraging their assets to unlock capital from more-traditional lenders or community development financial institutions (CDFIs). These types of organizations steward deep relationships within their communities and are well-positioned to fund food system enterprises. Federal programs provide critical resources to local food organizations and small farmers, but support for sustainable food systems makes up only a fraction of the public funding allocated for agriculture. Increasing this share would have a multiplier effect. As more philanthropic and government funding flows into the food systems space, more private capital will find its footing there. Many enterprises in our portfolio accessed USDA grants to support early-stage programs and center equity in their work. The field needs all sources of nonextractive capital, which ranks community benefits above investor returns. But we have found that food system enterprises are best served when community-based funders lead. Food systems vary widely across rural, urban and geographic divides. Funders that hold direct relationships with food system entrepreneurs and ecosystem partners more clearly understand the regional food supply chain and are able to make more informed and effective funding decisions. The way forward Over the past decade, much has changed across food and finance systems. Consumers increasingly value sustainable and local production methods , and more funders are entering the space, especially with sustainable food production emerging as one solution to our climate crisis. With COVID-19 thrusting the inequities of our food system into the forefront of the national conversation, we must use this moment to catalyze investment into food systems that care for farmers, food chain workers, eaters and the environment. If we want to decommodify our food system, we must decommodify our food financing system. We need tools with impact-adjusted return expectations; we need investors and donors willing to redistribute risk; and we need local, integrated capital solutions. With those assets in hand, we can realize the vision of a regenerative food system that serves everyone. Pull Quote Investors seeking a better food system need to take the time to understand a company’s impact and its beneficiaries, toss out traditional assumptions about market rate returns and ensure that terms benefit communities. When venture-backed companies disrupt local food systems and don’t have the longevity or the relationships to create long-term impact, they actually can harm communities. Topics Food & Agriculture Finance & Investing COVID-19 Social Justice Investing Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off

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Hard truths from a decade of investing in regional food systems

How To Finance Your Energy Efficiency Upgrades for Free

September 1, 2020 by  
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As many environmentalists know, the falling price of renewables and … The post How To Finance Your Energy Efficiency Upgrades for Free appeared first on Earth 911.

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How To Finance Your Energy Efficiency Upgrades for Free

A CFO’s take on climate and risk management

July 13, 2020 by  
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A CFO’s take on climate and risk management Vincent Manier Mon, 07/13/2020 – 01:00 Just a couple of months into 2020, the world was amid significant discussion about the core purpose of businesses, led by BlackRock CEO Larry Fink calling for corporate America to take control of its carbon footprint and major companies, including Microsoft and Delta , making ambitious zero-carbon pledges. When COVID-19 arrived, we saw the impact that global crises have overnight, teaching the corporate sphere valuable lessons about risk mitigation. Economic estimates predict that the pandemic will decrease global GDP by 3 percent in 2020, and at our current pace, climate change is estimated to decrease the global GDP by anywhere from 2.5 percent to 7.5 percent by 2050 . While climate risk remains an often overlooked or undervalued factor in risk management programs, there is an urgent need to integrate resiliency into core business strategy if businesses want to continue to thrive — or even remain operational. There is an urgent need to integrate resiliency into core business strategy if businesses want to continue to thrive — or even remain operational. The current COVID-19 pandemic has emphasized the importance of prioritizing resilience by exposing the fragility of global supply chains and dysfunctional systems across businesses and forcing them to change the way they plan and operate to factor in large-scale crises. Hospitals, for example, felt the disastrous impact of vulnerable supply chains, and needed to plan for alternative sources of personal protective equipment to keep their medical workers and staff safe. These learnings must be applied to similar risk brought about by climate change — businesses need to prepare for the impact of devastating weather events on supply chains and infrastructure they rely on to remain safe and operational. As key members of the financial team, risk managers need to grasp the implications of sustainability across the organization, from strategic risks posed by new regulations to operational risks posed by extreme weather and financial risks with regards to taxes and insurance. As we continue to fight climate change, understanding the strategic, operational and financial risks — and the tools available to assess and plan for them — will help finance teams take a more forward-facing approach to risk management and avoid repeating past mistakes. Strategic risk factors Four key risk factors are associated with strategic risk and sustainability: economic changes; corporate responsibility; regulatory risk; and reputational risk. From an economic standpoint, there have been major shifts brought about by decarbonization and diversifying portfolios — consider the rapid decline of the coal industry, for example. In addition, companies are being held more accountable for their impact on the environment, with pressure coming from all sides, including customers, investors, competitors and regulators. Increased regulation and legal requirements around resource management and carbon reduction, as well as required carbon reporting, can result in major fines if not complied with. Finally, reputational risk, while hard to quantify, can be enormous, particularly in today’s political climate and as both internal and external stakeholders become more educated on the action against climate change. Operational risk factors Sustainability also can affect how businesses approach operations, such as supply-chain optimization, procurement strategies, data privacy and security. For instance, the finance team can make more informed decisions around power purchase agreements, onsite and offsite renewable energy, decentralization and microgrids, energy independence and cost savings opportunities when factoring climate risk into the overall procurement strategy. There are also more direct operational risks to consider as a result of climate change in the form of extreme weather events, which continue to increase in both frequency and intensity. Businesses must account for the possibility of outages, damages and closures, all of which can threaten the ability to protect employees, assets and data centers (which can pose new risks in terms of data privacy and leaks) and, ultimately, to keep the business operational. Financial risk factors Climate change poses significant financial risks to an organization as sustainability policies and corporate initiatives can affect taxes, insurance, resource management, energy sourcing, investor support and even intangible assets such as goodwill — for instance, the impalpable value that customers and investors place on a company’s ability to reduce its footprint. From changes in insurance premiums and coverage to identifying financial benefits of electrification, there are almost countless financial risks and opportunities for the financial team to assess. Sustainability planning also opens the door to integrating new technologies to save money, such as alternative energy vehicles, which bring financial benefits all their own. Integrating climate risk strategy Integrating climate risk into new or existing risk management programs can seem daunting, but the financial team can leverage strategic assessments to make the process simpler. For instance, vulnerability assessments allow businesses to understand where climate change is most likely to affect them. Scenario assessments can provide a forward-looking view of the potential impact, so finance teams can plan ahead to mitigate future developments. The world’s current state is illuminating the need for resilience to global events we may not be able to foresee or control. With climate change being the next undeniable threat, it’s on the shoulders of the financial team to ensure that companies are adequately prepared for different climate events to improve their resilience and mitigate the associated risks. The strategic planning used now to prepare for these issues may encourage innovation and new methods of operating that not only benefit the bottom line but also prepare a business for when unexpected events do occur. This also offers opportunity to strategically prepare and recover from events in a way that helps reduce climate change and improve the environment on a global scale. Pull Quote There is an urgent need to integrate resiliency into core business strategy if businesses want to continue to thrive — or even remain operational. Topics Risk & Resilience Climate Change Finance & Investing Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off Shutterstock

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A CFO’s take on climate and risk management

BofA, Goldman, JPMorgan, Wells Fargo launch center for climate-aligned finance

July 9, 2020 by  
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BofA, Goldman, JPMorgan, Wells Fargo launch center for climate-aligned finance Jesse Klein Thu, 07/09/2020 – 00:01 The Rocky Mountain Institute (RMI) is banking on banks to get us over the carbon-neutral finish line by 2050.  The nonprofit announced Wednesday that it’s partnering with four of the world’s largest financial institutions — Wells Fargo, Goldman Sachs, JPMorgan Chase and Bank of America — to launch the Center for Climate-Aligned Finance . The center will serve as a hub for cross-sector collaboration, bringing traditional financial instruments to innovative ideas to decarbonize the planet.  “It’s not the responsibility of any single country or single sector,” said Paul Bodnar, managing director for climate finance at RMI. “But one sector provides the lifeblood that powers all the others and that’s finance.”  A new buzzword, climate-aligned finance, is RMI’s answer to the uneven responsibility put on the financial sector. Its goal is to integrate the financial sector’s attempts at going green, including green business investments, exclusionary policies for certain fossil fuels and the industry’s ESG policies, into one complete strategy.  The Center for Climate-Aligned Finance will focus on four areas using RMI’s knowledge of sustainability in a variety of sectors and its deep understanding of the financial world. First, it will create specific, personalized initiatives for high-emitting sectors such as steel and cement production, utilities and the energy supply. Secondly, it will generate global frameworks on climate-aligned finance to guide other financial institutions around the world.  It’s important that the tools we develop be as practical and commercial as possible. “We really need tools now to take us from theory to practice,” said Marisa Buchanan, head of sustainability at JPMorgan Chase. “It’s important that the tools we develop be as practical and commercial as possible.”  The center also will support individual institutions and shape public discourse in the financial sector as the two other main areas of focus.  According to Bodnar, while the strategy starts with advocating a vision of carbon neutrality for the highest energy-using corporations, it will need to be stewarded by the loans, grants and investments doled out by these large financial partners . Wells Fargo has pledged to lend or invest $200 billion to sustainable businesses and projects by 2030. Goldman Sachs plans to help its clients transition into a climate-resilient model with $750 billion by 2030, and Bank of America is directing $300 billion towards these efforts as well.   “To serve our clients requires really analytical tools,” said John Goldstein, head of the sustainable Finance Group at Goldman Sachs. “Real technical chops required to do this work thoughtfully for analyzing, advising, financing and navigating.” While the banking industry has invested a lot into a green future where it sees an opportunity for job creation, profitable returns on innovative new companies and risk mitigation, it hasn’t seemed ready to walk away from the fossil fuels that built the sector’s wealth.  But pressure is mounting for the banks to overhaul their lending practices holistically. This includes a focus on solutions that will benefit vulnerable communities on the front lines of climate change that often have been overlooked by the environmental movement.  “The communities that are disproportionately affected by pollution from heavy industry, it is pretty well documented that communities of color and low-income communities tend to suffer the most,” Bodnar said. “That is an urgent call for us to accelerate the transition out of the assets that are generating the most pollution.”   Pull Quote It’s important that the tools we develop be as practical and commercial as possible. Topics Finance & Investing Banking Featured in featured block (1 article with image touted on the front page or elsewhere) Off Duration 0 Sponsored Article Off

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BofA, Goldman, JPMorgan, Wells Fargo launch center for climate-aligned finance

It’s just numbers: A ROSI view of corporate sustainability

March 24, 2020 by  
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How do you justify a company’s sustainability investments? There’s an app for that.

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It’s just numbers: A ROSI view of corporate sustainability

Paul Polman: How responsible businesses can step forward to fight coronavirus

March 24, 2020 by  
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As the limits on our go-to crisis-management tools become clear, it is increasingly apparent that we need the private sector to join the COVID-19 front line.

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Paul Polman: How responsible businesses can step forward to fight coronavirus

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