Ratings

08 Jan 2024

  Aviva Investors

Aviva Investors: The tipping point for climate finance

Download: The tipping point for climate finance (pdf) 

Transition plans, including from governments in response to the Global Stocktake, will be crucial to bring about the shift to a low-emissions, climate-resilient world. Markets need clear implementation signals to align capital with the goals of the Paris Agreement. Our in-depth report calls for the creation of a transition-plan ecosystem connecting all levels of the global economy.

At the heart of the Paris Agreement is the crucial question of how the world finances the climate transition. We need to harness investment of US$4-6 trillion per annum and the whole of global finance in a way that both protects sustainable development and moves money incrementally towards activity aligned with a just transition to a sustainable future.

To put the scale of this challenge in context, the Marshall Plan of 1948 delivered $13 billion of funding to rebuild Europe after World War Two, around $165 billion in today’s prices. We need to mobilise the equivalent of 30 Marshall Plans every year to invest in the transition.

However, the fifth biennial assessment of climate finance by the UN Framework Convention on Climate Change (UNFCCC) Standing Committee on Finance, published in October 2022, identified an average of $803 billion deployed per year in 2019 and 2020. It is clear markets are not currently delivering investment at the scale required. It is also obvious private finance must be mobilised to close the gap. The key question is: How can the necessary shift in finance be achieved? 

A transition-plan ecosystem

In this report, we offer our suggestions for a potential way forward. We highlight four principles: building a vision for the transition, providing economic fundamentals, renewing the international financial architecture, and building institutional capacity to synthesise a “transition-plan ecosystem”. We also highlight the central importance of transition planning at all levels of the global economy to appropriately incentivise markets.

Specifically, we believe four key steps are required:

  • Create a vision – The response to the Global Stocktake should include not only government and public body action, but detailed analysis of the progress made by private finance towards the goals of the Paris Agreement. A global vision is needed to make all financial flows consistent with Article 2.1.c of the Paris Agreement, which can be led by the creation and implementation of national transition plans.
  • Change economic fundamentals – The Stocktake should make clear it expects Parties to respond not only with essential and urgent enhancements of Nationally Determined Contributions (NDCs), but also a clear implementation plan – a national, whole-of-government transition plan with annual reporting on progress. These plans can send signals to markets about commitment to transition and policy shifts that will change future corporate cashflows and therefore market valuations.
  • Transition the international financial architecture – The Stocktake outputs should include a review of the international financial architecture. A detailed regulatory vision is needed to align the regulation and supervision of finance with the ambitions of Parties – a blueprint for a transition-aligned, purpose-enabled financial architecture. All bodies within the international financial architecture should respond to the signals sent by government stakeholders in signing up to the Paris Agreement, Kunming-Montreal Framework and Sustainable Development Goals by creating their own institutional transition plans. These will set out how their work will transition to take account of the global commitment to net zero, particularly the steps to be taken before 2030 to align with a 43 per cent cut in emissions against 2019 levels. These transition plans would send important signals about prioritisation to guide those they regulate and supervise.
  • Build institutions – An institutional guiding, monitoring and analysis mechanism is needed. We need clear guidance for national and financial architecture transition plans, along with an annual synthesis report that monitors implementation and supports iterative, dynamic and responsive plans that evolve with the accelerating transition.

Putting these things in place will not be easy. But the collective benefits from decisive action are too big a prize not to try. We need to start now.

Download “The tipping point for climate finance” to understand:

  • The importance of transition plans in achieving the goals of the Paris Agreement.
  • The role of the international financial architecture in supporting the shift to a low-emissions, climate-resilient world.
  • How concerted action across the global economy can bring about positive tipping points for climate finance.
 

Important information

Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any nature. Information contained herein has been obtained from sources believed to be reliable, but has not been independently verified by Aviva Investors and is not guaranteed to be accurate. Past performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. Nothing in this material, including any references to specific securities, assets classes and financial markets is intended to or should be construed as advice or recommendations of any nature. Some data shown are hypothetical or projected and may not come to pass as stated due to changes in market conditions and are not guarantees of future outcomes. This material is not a recommendation to sell or purchase any investment.

The information contained herein is for general guidance only. It is the responsibility of any person or persons in possession of this information to inform themselves of, and to observe, all applicable laws and regulations of any relevant jurisdiction. The information contained herein does not constitute an offer or solicitation to any person in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it would be unlawful to make such offer or solicitation.

In Europe, this document is issued by Aviva Investors Luxembourg S.A. Registered Office: 2 rue du Fort Bourbon, 1st Floor, 1249 Luxembourg. Supervised by Commission de Surveillance du Secteur Financier. An Aviva company. In the UK, this document is by Aviva Investors Global Services Limited. Registered in England No. 1151805. Registered Office: St Helens, 1 Undershaft, London EC3P 3DQ. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119178. In Switzerland, this document is issued by Aviva Investors Schweiz GmbH.

In Singapore, this material is being circulated by way of an arrangement with Aviva Investors Asia Pte. Limited (AIAPL) for distribution to institutional investors only. Please note that AIAPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIAPL in respect of any matters arising from, or in connection with, this material. AIAPL, a company incorporated under the laws of Singapore with registration number 200813519W, holds a valid Capital Markets Services Licence to carry out fund management activities issued under the Securities and Futures Act (Singapore Statute Cap. 289) and Asian Exempt Financial Adviser for the purposes of the Financial Advisers Act (Singapore Statute Cap.110). Registered Office: 1 Raffles Quay, #27-13 South Tower, Singapore 048583.

In Australia, this material is being circulated by way of an arrangement with Aviva Investors Pacific Pty Ltd (AIPPL) for distribution to wholesale investors only. Please note that AIPPL does not provide any independent research or analysis in the substance or preparation of this material. Recipients of this material are to contact AIPPL in respect of any matters arising from, or in connection with, this material. AIPPL, a company incorporated under the laws of Australia with Australian Business No. 87 153 200 278 and Australian Company No. 153 200 278, holds an Australian Financial Services License (AFSL 411458) issued by the Australian Securities and Investments Commission. Business address: Level 27, 101 Collins Street, Melbourne, VIC 3000, Australia.

The name “Aviva Investors” as used in this material refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva investors’ affiliate is a subsidiary of Aviva plc, a publicly- traded multi-national financial services company headquartered in the United Kingdom.

Aviva Investors Canada, Inc. (“AIC”) is located in Toronto and is based within the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AIC is registered with the Ontario Securities Commission as a commodity trading manager, exempt market dealer, portfolio manager and investment fund manager. AIC is also registered as an exempt market dealer and portfolio manager in each province of Canada and may also be registered as an investment fund manager in certain other applicable provinces.

Aviva Investors Americas LLC is a federally registered investment advisor with the U.S. Securities and Exchange Commission. Aviva Investors Americas is also a commodity trading advisor (“CTA”) registered with the Commodity Futures Trading Commission (“CFTC”) and is a member of the National Futures Association (“NFA”). AIA’s Form ADV Part 2A, which provides background information about the firm and its business practices, is available upon written request to: Compliance Department, 225 West Wacker Drive, Suite 2250, Chicago, IL 60606.


Back

Share this article