Transition Investing and Blended Finance Top of Agenda for Institutional Investors at COP27: Reflections from The Investor Leadership Network

Nov 22, 2022

Many Investor Leadership Network (ILN) members traveled to Sharm-El-Sheikh last week to participate in COP27– the United Nations’ annual Climate Change Conference, which in its 27th year has been dubbed, “the implementation COP.”

This tone of ‘moving from announcements to action’ rang true for ILN members, whose conversations with each other and across sectors remained at a technical and tactical level. Meetings involving financial industry leaders mainly focused on two challenges: 

    1. Transition financing: how investors should allocate their capital to accelerate global decarbonization, and
    2. Increasing blended finance: how to build the cross-sector partnerships required to mobilize private investment at scale into the Global South.

When discussing the challenge of managing portfolios through and towards the transition to a lower carbon economy, financiers cited a need for clearer definitions of what is “green” and what is “grey.” These definitions would make it easier to slot these assets into proper positions within transition plans. Without widely adopted asset categorization taxonomies, investors shared, we might risk the perception of greenwashing. 

ILN hosted a panel at the Canadian Pavilion on this topic, where Evan Siddall of AIMCo, Marc-André Blanchard of CDPQ, Richard Manley of CPP IB, and Michael Kelly of OMERS shared their firms’ respective strategies for financing real-economy decarbonization. Steven Guilbeault, Canada’s Minister of Environment and Climate Change, opened the session with a few remarks on the importance of financial institutions’ leadership in decarbonizing industries at scale, then handed the microphone to ILN to dive into case studies from our recent Net Zero Investor Playbook. This panel showcased how sharing best practices amongst peers, as occurs within ILN’s Climate Change Advisory Committee, leads to accelerated progress across the industry.

At meetings and panels addressing the challenge of increasing blended finance deals, participants unanimously agreed that rebuilding trust across public and private institutions will be a critical factor in solving the climate crisis. Blended finance project structures are not new; they have proven successful in the past in the wind and solar industries. Before we can scale these use cases to new industries in more markets, however, the global financial architecture will need to be reshaped to better optimize the strengths and assets of private and public financial institutions. 

ILN members significantly contributed to these conversations at COP27, as ILN was one of the first investor voices to propose a new partnership model to increase blended finance deals this year. After publishing our Blended Finance Blueprint with The Rockefeller Foundation in September 2021 and our Recommendations For Policymakers with the Sustainable Markets Initiative in June 2022, ILN also supported The Net Zero Asset Owner Alliance’s recommendations for Scaling Blended Finance in September 2022.

Private institutional investors’ strong focus at COP27 on 1) financing the net zero transition, and 2) increasing blended finance both fundamentally ladder up into the climate conference’s unofficial, yet largest theme: delivering a just transition. As countries in the Global South collectively call for governments and businesses in the Global North to address the loss and damage they’ve experienced (from climate change that high-emitting, wealthy countries played a larger part in causing), institutional investors are assessing how they can ensure the global transition to a low carbon economy will help, not further harm the Global South. There is a historic shift occurring among institutional investors: firms are becoming more interested in investing in emerging and developing markets because they recognize the long-term, macro-economic imperative of ensuring their climate-resiliency and low-carbon energy transition. In short, the climate crisis and all its impending risks has successfully made the business case for investors to see every industry in every region through the transition. 

ILN members are proud to be front and center in these conversations, leading the industry towards the engagement strategies and financing models that will allow them achieve impact without dishonoring their fiduciary duty. Thank you to all of our partners and colleagues for your collaboration, and for your determination to implement our collective climate goals.

For any questions or media inquiries about ILN, our three initiatives, or our experience at COP, please contact marielle_brunelle@investorleadershipnetwork.org

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