Climate Finance Roundup - February 5
Carbon pledges of banks; Nordic Baltic Hydrogen Corridor; India supports biofuels; Impact of climate news on mutual fund investments; XTREAM project - extremophile microbes for industrial applications
In this newsletter:
Clime Capital Invests in Smart Energy Management Solution Provider Ampotech
New Research Project XTREAM Investigates the Industrial Potential of Extremophilic Microorganisms
Research on the carbon pledges of banks, from the Bank of Italy
European Commission Allocates €6.8 Million for Nordic Baltic Hydrogen Corridor
UK government expands initiatives for climate finance and development
EIB Global provides €105 million loan to Ameriabank for sustainable development
ACER consults on cost allocation mechanisms for hydrogen infrastructure
Measures by Indian Government for Promoting Biofuel
Impact of Climate News on Mutual Fund Investments - Research from BIS
Reintroducing the Cisco Foundation Regenerative Future Fund
How Private Equity Investors Are Backing the Energy Transition
Viet Nam's Sustainable Economic Growth Strategy
News from Canada
Minister Duguid announces federal investments for sustainable transportation in Canada
NRC IRAP and Innovate BC invest in British Columbia cleantech projects through BC Fast Pilot program
Significant investments in marine safety and support for Indigenous communities
Canada invests in NGOs for climate resilience
Clime Capital Invests in Smart Energy Management Solution Provider Ampotech
(February 04)
Singapore-based Clime Capital announced an investment in Ampotech, a provider of energy management solutions, to support its expansion in Southeast Asia, particularly in Vietnam, Indonesia, and the Philippines. This investment is part of the Southeast Asia Clean Energy Fund II (SEACEF II). Ampotech uses AI-enabled IoT solutions to help commercial and industrial customers improve energy management and resource distribution in energy-intensive industries.
Research Project XTREAM Investigates the Industrial Potential of Extremophilic Microorganisms
(February 04)
The EU-funded XTREAM project has launched in Bergen, Norway, bringing together 13 partners from institutions across Europe. The project aims to explore the industrial potential of extremophilic microorganisms found in extreme environments such as glaciers, hot springs, and acid mine drainage. Funded with around €4.4 million from the EU's Horizon Europe programme, XTREAM seeks to develop sustainable biotechnological applications and contribute to climate and sustainability goals.
GEOMAR Helmholtz Centre for Ocean Research Kiel
Research on the carbon pledges of banks, from the Bank of Italy
(February 03)
The Bank of Italy published five new issues of the series "Questioni di economia e finanza" on February 3, 2025. The issues cover various topics, including the recent development of renewable energy in Italy and the climate commitments of banks. Notable attachments include N. 908, which discusses the development of renewable energy, and N. 906, focusing on the climate commitments made by banks.
Here’s an overview of the paper N.906 - Banks’ carbon pledges: amazing or a maze? via Gemini-2.0
Overall Themes:
Data Heterogeneity and Fragmentation: A major technical challenge is the inconsistency and lack of standardization in data on banks' carbon pledges across different sources (MSCI, CDP, SBTi, GFANZ). This makes it difficult to compare, evaluate, and aggregate the information.
Limited Transparency and Accountability: Opaqueness in the underlying assumptions of metrics like Implied Temperature Rise (ITR) and difficulties in verifying the credibility of pledges pose policy challenges.
Complex Relationship between Commitments and Actions: There is a weak and delayed connection between banks' carbon pledges and their actual lending policies.
Need for Improved Corporate Decarbonization: ITR estimates indicate that the European banking system is not well aligned with the Paris Agreement's goals.
1. Introduction
Context: The financial sector needs to facilitate a significant reallocation of capital from carbon-intensive to clean assets (IEA estimates $4.5 trillion/year by 2030).
Challenge: Understanding the forward-looking data, such as banks' carbon pledges and projected emissions, is still limited.
Objective: Investigates the banks’ decarbonization pledges, representing the transition plans’ quantitative component.
2. Contribution to the Related Literature
Emphasis: Corporate transition plans can increase transparency, comparability, and granularity.
Findings in Other Studies: Limited decarbonizing at a sufficient trajectory, and the aggregated emissions do not reduce the emissions.
3. Data
Sample: 129 large listed European banks, representing almost 70% of Euro-area banking credit to non-financial corporations.
Data Sources: LSEG-Datastream, Bloomberg, MSCI, ISS (GHG data), AnaCredit (loan data), different bank pledges.
4. Banks' Carbon Reduction Pledges
Technical Challenge: No common framework or reliable dataset for banks' objectives. Each bank sets targets according to its specific characteristics.
Data Fragmentation: Data sources are complementary, not substitutes (MSCI and CDP vs. GFANZ and SBTi).
Heterogeneity: Commitments differ in scope (1, 2, 3), time horizons, and metrics (absolute emissions or intensities). Some refer to specific sectors (real estate, automotive, etc.).
Example Pledges: Range from reducing portfolio emissions from a sector (e.g., energy, automobiles) to a specific level, increasing renewable energy use, or achieving net-zero emissions by a certain date.
Limited Clarity: A significant portion of announcements lack clarity on metrics, percentage reduction, and baseline/target years.
Limited scope 3 target: Banks mainly focuses on scope 1 and scope 2 emissions.
5. Which Banks Commit? The Ex-Ante Features of Committed Banks
Key Finding: Larger banks with higher emissions, granting more credit to high-emitting sectors, and charging them lower interest rates are more likely to set carbon pledges.
Size Matters: Banks with larger loan books, assets, and investments are more likely to set carbon targets.
Public Pressure and Transition Risk: Larger banks lending to high-emitting sectors face significant public pressure and higher transition risk.
Lack of Unique Profile: No single bank profile fits all types of pledges.
6. Ex-Post Effects on Lending Policies of Committed Banks
Methodology: Difference-in-differences (Callaway & Sant'Anna, 2021) to analyze the impact of commitments on lending policies (amounts and interest rates).
Weak Effects: Climate commitments (joining GFANZ, announcing other pledges) do not substantially affect sectoral credit allocation and policies for high-emitting sectors.
SBTi Influence: Targets related to SBTi appear to be more influential in steering banks' lending policies.
Delayed Impact: Effects do not materialize immediately, highlighting the long-term nature of the pledges.
7. Challenges in Evaluating and Comparing Pledges using the Implied Temperature Rise
Policy Challenge: Need for methods to measure the alignment of companies and investment portfolios with the Paris Agreement's goals.
Technical Challenge: ITR metrics differ significantly across providers (Bloomberg and MSCI), with low correlation.
Data Limitations: Limited data coverage.
Opaqueness: Difficult to use for financing and investment decisions due to the heterogeneity.
8. Biodiversity-Related Commitments
Increasing Awareness: Growing attention to nature-related risks and their interconnection with climate-related risks.
CDP Questionnaire: Banks are increasingly analyzing their biodiversity-related impacts.
Close relationship between climate and bio-diversity pledges.
9. Conclusions
Restatement of Key Problems: Heterogeneous targets hinder comparison, and banks with higher emissions grant most of the credit to high-emitting sectors at lower rates.
Need for accountability and pressure for external verification.
Banks are pairing climate with biodiversity commitments
European Commission Allocates €6.8 Million for Nordic Baltic Hydrogen Corridor
(February 04)
The European Commission has allocated €6.8 million from the Connecting Europe Facility (CEF) to support the Nordic Baltic Hydrogen Corridor (NBHC) project during its feasibility study phase. This funding will help execute essential studies focused on pipeline routing, planning compressor stations, and assessing environmental and safety permitting issues across Finland, Estonia, Latvia, Lithuania, Poland, and Germany. The studies are set to run until the end of 2026, with the project expected to significantly contribute to Europe's clean energy landscape and carbon emissions reduction goals.
UK government expands initiatives for climate finance and development
(February 03)
The UK government is convening an Investor Taskforce to increase private investment for climate and development in global markets. They announced up to £100 million of additional funding for the MOBILIST initiative, aimed at mobilizing $250 million for climate-focused projects. Furthermore, the World Bank's recent bond issuance on the London Stock Exchange is expected to raise $7.5 billion over ten years for clean energy investments in developing countries.
EIB Global provides €105 million loan to Ameriabank for sustainable development
(February 03)
The European Investment Bank (EIB Global) has granted a €105 million loan to Ameriabank, marking its largest direct loan to a bank in the South Caucasus. This funding aims to support around 400 small businesses and secure over 15,000 jobs, with at least 20% committed to green investments. The initiative highlights EIB Global's dedication to fostering economic development and promoting sustainable practices in Armenia.
ACER consults on cost allocation mechanisms for hydrogen infrastructure
(February 03)
The Agency for the Cooperation of Energy Regulators (ACER) has initiated a consultation on inter-temporal cost allocation mechanisms specifically aimed at financing hydrogen infrastructure in the European Union. This step is significant as it seeks to support the development of hydrogen as a key energy source in the EU's transition to a low-carbon economy.
European Union Agency for the Cooperation of Energy Regulators (ACER)
Measures by Indian Government for Promoting Biofuel
(February 03)
India's Ministry of Petroleum & Natural Gas has promoted biofuel production through the National Policy on Biofuels, which identifies multiple feedstocks, including heavy molasses, sugarcane juice, and agricultural residues. The government has implemented measures to encourage biodiesel investment, including blending targets and reduced GST rates from 12% to 5%. The Pradhan Mantri JI-VAN Yojana has been amended to provide financial assistance for Advanced Biofuel Projects.
Impact of Climate News on Mutual Fund Investments - Research from BIS
(February 04)
A new research paper from the Bank of International Settlements analyzes the effect of climate-related news on investment flows in mutual funds, particularly focusing on 'green funds' that invest in sustainable companies. The authors, led by Giulio Cornelli, find that climate news leads to significant and sustained inflows into green funds compared to traditional funds. The study highlights the responsiveness of green funds to climate risks, leading to capital reallocation towards environmentally-friendly companies, thereby supporting a transition to a sustainable economy.
Here’s a detailed overview (using Gemini 2.0)
Key Findings:
Heightened climate news leads to significantly larger capital inflows into "green" funds compared to non-green funds. This effect is persistent, lasting up to four months.
Green funds, in reaction to climate news, reduce their exposure to high-polluting firms relative to low-polluting firms more than non-green funds do. This indicates a reallocation of investments towards environmentally friendly companies.
Public interest in transition risks (regulatory and future risks) is a driving force for capital inflows into green funds, while news about physical climate risks (like extreme weather) mainly drives portfolio adjustments.
Green funds tend to decrease their investments in relatively higher emitters compared to non-green funds, following increases in public attention to climate.
Data and Methodology:
The study uses granular data on mutual fund flows from Lipper (December 2006 - June 2022), fund holdings, and target firm financial statements (S&P Capital IQ).
Greenhouse gas (GHG) emissions data (Scopes 1 & 2) from S&P Trucost are used to measure firm "brownness".
Climate news is measured using the Media and Climate Change Observatory (MeCCO) index. The Actuaries Climate Index (ACI) is used to distinguish physical vs. transition risk.
Panel regression models are used to analyze the relationship between climate news, fund flows, and portfolio allocations.
Policy and Technical Challenges (Inferred):
Greenwashing: The paper addresses the challenge of "greenwashing" (misrepresenting environmental impacts) by filtering funds with significant investments in oil and gas sectors. This highlights the need for clear definitions and standards for green funds.
Data Availability and Reliability: The study notes that scope 3 emissions data are less reliable. Limited data availability for holding-level data and pre-2016 periods are also mentioned. This underscores the need for more comprehensive and reliable environmental data.
Causality and Endogeneity: The paper uses lagged variables and fixed effects to mitigate endogeneity concerns and establish a causal relationship. However, disentangling the exact mechanisms and feedback loops remains a challenge.
Impact Measurement: The study highlights the need for a nuanced understanding of how climate news affects different types of funds and firms. Disentangling the effects of physical risk versus transition risk is critical for understanding market responses and directing policy interventions.
Persistence of Effects: Examining the persistence of the impact on funds' portfolio allocations confirms the need for clear definitions, standards, and policy.
Specific Examples & Figures:
MeCCO Index: The index peaked in December 2009 (COP15 conference) and October 2021 (COP26 conference). Extreme events like hurricanes Dorian and Sally also caused spikes.
Green funds have, on average, 1.36% monthly flow compared to non-green fund average of 1.03%.
U.S. mutual funds hold 22% of the total market value of U.S. corporate equity.
In conclusion, the paper provides empirical evidence that climate news influences mutual fund behavior, driving capital towards greener funds and environmentally friendlier companies. It highlights both the potential and the challenges of using financial markets to promote a sustainable economic transition.
Bank for International Settlements (BIS)
Reintroducing the Cisco Foundation Regenerative Future Fund
(February 03)
US-based Cisco Foundation has rebranded its climate investments program to the Regenerative Future Fund.
Through the Fund we will continue to invest in climate tech companies at the seed and series A stages, while also serving as a limited partner with early-stage venture funds advancing climate solutions.
This Fund will focus on technologies that support regeneration and biodiversity restoration, community resilience, and sustainable economies.
How Private Equity Investors Are Backing the Energy Transition
(February 03)
The California Public Employees' Retirement System (CalPERS) has indicated that climate change risks are significant and must be addressed by all limited partners (LPs) committing to fiduciary duties. It highlighted the global need for $8.1 trillion annually in climate finance, rising to $9 trillion by 2030. Sweden's AP4 has cut emissions by 65% through portfolio reallocation, and Dutch pension fund PME Pensioenfonds plans to divest from BlackRock due to its lack of alignment with net-zero goals. The New York State Retirement Fund has set a target of $40 billion in climate solutions investments.
Viet Nam's Sustainable Economic Growth Strategy
(February 03)
Viet Nam aims to achieve sustainable economic growth by integrating economic, environmental, and social development, as outlined in the 2030 Agenda. The government has adopted an action plan to promote green growth, including the introduction of an environmental tax that increased revenue to around USD 2.1 billion from 2012 to 2018. Additionally, 26 banks are issuing green loans to support investments in energy efficiency, renewable energy and organic agriculture.
Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ)
Minister Duguid announces federal investments for sustainable transportation in Canada
(February 04)
Canada's Prairie Economic Development has announced a funding of $43 million over two years for the Remote Passenger Rail Program (RPRP) to enhance sustainable transport services to remote areas. This investment is aimed at ensuring safe and reliable passenger rail services which are crucial for communities with limited access. The funding will support the Hudson Bay Railway operations, facilitating the transport of critical minerals and promoting economic growth and tourism along the railway line.
NRC IRAP and Innovate BC invest in British Columbia cleantech projects through BC Fast Pilot program
(February 04)
Canada's National Research Council and Innovate BC have invested $1.5 million in funding for 12 B.C.-based innovative pilot demonstration projects aimed at developing a more sustainable economy. This funding, provided through the BC Fast Pilot program, helps small and medium-sized businesses design and operate pilot plants to showcase their technologies in real-world conditions. Successful projects can receive up to $200,000 to demonstrate the impact of their solutions, focusing on areas like emission reduction and wildfire management.
Significant investments in marine safety and support for Indigenous communities
(February 04)
Transport Canada announced $16 million to 34 Indigenous communities and organizations through the Indigenous and Local Communities Engagement and Partnership Program to hire marine coordinators. The marine coordinators will focus on building relationships and integrating Indigenous Knowledge in policies concerning marine safety and environmental protection. Additionally, up to $109 million was allocated to expand the Enhanced Maritime Situational Awareness Initiative to support Indigenous and coastal communities.
Canada invests in NGOs for climate resilience
(February 04)
The Government of Canada has announced an investment of $38.5 million to support more than 150 small and medium-sized NGOs through the "LIFT for Small and Medium Organizations" project. This initiative aims to enhance climate resilience, promote gender equality, and ensure long-term sustainability in global development efforts.
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