Climate Crisis And Banks
9 April 2015
Climate crisis is pushing financial institutions to take steps. Financial institutions with over US$ 2,100 billion in assets publish principles to guide future investments in clean energy and India’s fourth largest private bank fixes goal for investment in 5GW of renewable energy by 2019.
Ed King writes in RTCC:
Leading development banks have agreed on a set of definitions for climate finance, in what officials say is an important step ahead of a proposed UN climate change pact in Paris later this year.
A set of “Climate Principles” backed by the World Bank, International Development Finance Club (IDFC) and Agence Francaise de Developpment lists investments than can qualify as climate friendly.
The “Top development banks agree definition for climate finance” headlined report says:
Released last week, the document outlines a range of efficiency, renewables and forestry projects that slow greenhouse gas emissions, but it also leaves the door open for future investments in coal power plants and carbon capture technologies (CCS).
These include “Energy-efficiency improvement in existing thermal power plant, industrial energy-efficiency improvements though the installation of more efficient equipment, changes in processes, reduction of heat losses and/or increased waste heat recovery.”
It also emphasises that banks should not exaggerate the amount of money flowing into clean energy projects, and report only funds that directly lead to emissions cuts.
The document is significant given the signatories – which include the top development banks in China, India, Brazil, South Africa, Japan and Mexico – control assets worth US$ 2,100 billion, with financing commitments of $390 billion in 2010.
In a statement Ulrich Schröder, Chairperson of IDFC and Chief Executive Officer of KfW Bankengruppe said this was a “major milestone in the fight against climate change.”
The April 8, 2015 datelined report says:
Rachel Kyte, World Bank group vice president and special envoy for climate change said common methodologies across financial organizations were essential to “build trust” that funds were flowing.
So far national governments have been unable to agree a common definition of how funds designated for climate friendly investments should be used.
This has led to fears that the level of clean energy funding on offer to developing countries has been exaggerated, fuelling poor country concerns they are missing out on promised monies ahead of a UN climate deal later this year.
Earlier this year the UN admitted less money had been provided in 2009-2012 than it had previously advertised.
The lack of clarity has also led to some controversial investments branded as ‘green’.
Last month an investigation by the AP news agency revealed Japan had invested in a series of coal powered power plants in Indonesia and Bangladesh using climate funds. Officials argued they were making existing plants more efficient.
Even the UN’s flagship Green Fund has been unable to rule out future investments in fossil fuels due to opposition from some countries. A recent board meeting left the door open for it to channel support to lower carbon coal, gas and oil projects.
Shelagh Whitley, a climate finance expert at the London-based Overseas Development Institute, told RTCC the announcement was a “positive first step”.
“Governments are figuring how to do this from scratch,” she said. “They will look to these institutions – they are making decisions that will drive wider climate finance investments.”
But she said she had reservations over the inclusion of technologies like CCS, which she said was in effect a new subsidy for fossil fuels, and often used to enhance the recovery of oil from older fields.
Super critical [highly efficient] coal power plants should not be constructed with climate finances, she added.
India’s private bank stakes money on renewables
A RTCC report by Megan Darby says:
Launched in 2004, Yes Bank has grown aggressively to become India’s fourth largest private bank.
On climate change, it can claim several firsts: the sector’s first sustainability policy, the country’s first green bond and a goal for investment in 5GW of renewable energy by 2019.
Srinath Komarina, senior vice president of responsible banking, talks to RTCC about solar ambition, pesky government regulations – and why coal is also a major item in the loan book.
As a new entrant on the scene, Yes Bank identified renewable energy as a growth area at a time not many people were talking about it, says Komarina. “We could clearly see this was one of the winning areas.”
The report adds:
It worked with companies right through the supply chain, from turbine manufacturers to installers. “We are reaping quite a good dividend right now.”
The bank led investment in one of the world’s biggest solar projects, a 151MW array in Neemuch, Madhya Pradesh.
In a social innovation Yes Bank is particularly proud of, wooden crates used for the solar panels were converted into desks for nearby schools.
The report says:
It was with government encouragement that Yes Bank announced its 5GW at the RE-Invest conference in February.
That was double the rate of investment it committed to five months earlier, as one of a handful of Indian corporates to attend UN secretary general Ban Ki-moon’s climate summit in New York.
But there remain regulatory barriers to mobilising large scale clean energy investment in India, Komarina says.
For one, there are limits on the proportion of funds banks can loan to each sector. Renewable energy is lumped in with conventional power businesses.
“If you have investment in one or two big power plants, that brings you very close to the limit,” says Komarina.
“It would be good if the renewable energy sector could have a separate sectoral cap, because it is a new and emerging field.”
The same applies to conglomerates like Tata. If a bank is already heavily invested in a certain business group, it may not have leeway to back expansion into new areas.
Komarina says: “From a bank perspective, we would like to maintain a relationship with the car manufacturing unit at the same time as giving investment to the wind energy unit.”
Then there are priority spending rules. The Reserve Bank of India requires lenders to invest 40% of their money into sectors including agriculture, microbusinesses and housing.
Yes Bank argues renewable energy should be added to that list. While the bank might benefit now from a lack of competition in clean energy, Komarina says the sector needs more players.
While Yes Bank is a leading proponent of the renewable sector in India, it continues to invest in coal, the most polluting fossil fuel – and refuses to disclose how much.
“From a business community perspective, given the whole energy demand for India, there is a huge demand for coal,” says Komarina.
“The use of coal is inevitable, but then how do you make it more sustainable?
One of the case studies in Yes Bank’s sustainability report regards “Coldry”, a technology brought in from Australia to make India’s lignite cleaner to burn.
It works by drying out the lignite, a brown variety of coal with high moisture content, before using it to generate power.
That results in coal with 280% higher calorific value, it claims, generating “substantially lower” greenhouse gas emissions than lignite in its natural form.
While it is far from the lowest carbon way of generating electricity, it makes a cheap source of fuel a bit less dirty.
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