IPCC report ignores the role of social finance in climate change solutions

By Marta Maretich @maximpactdotcom

The IPCC report on “impacts, adaptation and vulnerability” caused a stir when it came out in March. The picture it paints of the current realities and possible future effects of climate change is not pretty. In its careful language, there’s “high confidence” that the earth is already suffering the effects of climate change and that, if we don’t take steps to avoid it, worse is to come.

For many who now work in the fields of impact and sustainable investing, this is not news. The sector is full of people financing businesses designed to make a difference to our future; or, in the words of the report, supporting “adaptive human responses to observed and projected climate-change impacts, which can also address broader risk-reduction and development objectives”. (Well, you know what they mean.)

But what does the report have to say about the role of innovative finance in tackling climate change and its consequences? In a word, nothing. It states, with only “medium confidence”, that:

“Existing and emerging economic instruments can foster adaptation by providing incentives for anticipating and reducing impacts. Instruments include public-private finance partnerships, loans, payments for environmental services, improved resource pricing, charges and subsidies, norms and regulations, and risk sharing and transfer mechanisms.”

And it goes on to warn: “Risk financing mechanisms in the public and private sector, such as insurance and risk pools, can contribute to increasing resilience, but without attention to major design challenges, they can also provide disincentives, cause market failure, and decrease equity. Governments often play key roles as regulators, providers, or insurers of last resort.”

The note is cautionary, the message is vague. The report speaks of the roles of “government” and the “private sector” but makes no specific mention of impact or sustainable investing, or any reference at all to the global movement toward green, ethical and socially responsible business. The trend for using market finance mechanisms to solve social and environmental problems (like the ones thrown up by climate change) may be gaining momentum around the world, but it doesn’t seem to have come on to the IPCC’s radar as yet.

That’s a shame; and somewhat surprising, given the growing prominence of the sector in recent years. Yet we shouldn’t feel too bad about it. Presumably, the IPCC has a lot of other things to worry about right now, such as how world leaders will react to its many data bombshells.

More to the point, being left out of the IPCC report should be a wake up call to impact and sustainable sector. Despite rapid growth and continuing enthusiasm for our approach, we’re still the new kids on the block. Our track record is short and, despite improvement, still scanty when it comes to quantifiable impact. We’re not yet seen as a significant source of solutions to these enormous challenges.

For this to happen, we need to demonstrate that impact and sustainable investing can play a central role in helping the world find “climate-resilient pathways are sustainable-development trajectories”. How do we do that? A good place to start is by mining the information in the IPCC report and aligning investment and development strategies with its findings. Building our ability to work hand in hand with governments and international development agencies will also be key to being effective in this field, if the report is correct. So will doing our part to collaborate, communicate and break down the silos that prevent us from having the optimal impact.

But most of all, we must remain committed to finding new and creative ways to use finance to bring about the outcomes that could ultimately save lives, habitats and ecosystems. Only by staying in the game will we be able to make a difference; and, with luck, one day take our place at the top table when it comes to bringing climate change solutions.

Read more about how the IPCC report is set to shape our investing landscape.

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