SUSTAINABILITY & CLIMATE CHANGE

ESG Trends 2021: Rise of Green Finance

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2 years ago

December 15, 2021

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– Green bond issuance is expected to reach an all-time high of $500bn this year

– Demand for social, sustainability and blue bonds has also grown in 2021

– COP26 has helped facilitate increased funding for emerging markets

– Efforts are being directed towards creating universal sustainable finance guidelines

In a year in which significant political efforts have been made to speed up the energy transition, 2021 has also been record-breaking for green finance, as governments, international institutions and lenders alike seek to support the shift towards renewables.

Mirroring developments that are expected to see new renewable energy generation capacity reach an all-time annual high of 290 GW this year, the issuance of green bonds – financial instruments that fund environmentally sustainable projects – is forecast to reach a record-breaking level of $500bn this year, according to the Climate Bonds Initiative (CBI). This is a 46% increase on last year’s figure of $270bn, which itself was an all-time record.

Emblematic of the increased appetite for sustainable finance was the EU’s $14bn issuance of green bonds in October, the largest ever of its kind. The money raised will be distributed among member states, to be used for clean energy projects and developments that help governments achieve carbon neutrality by 2050.

While Europe is a leader in the issuance of green bonds, a number of emerging markets have also made significant progress on this front.

For example, in April Saudi tourism project developer The Red Sea Development Company secured a SR14.1bn ($3.8bn) green bond from four Saudi banks, with the funds to go towards building 16 renewable energy-powered hotels across the country.

Meanwhile, in a sign of the green potential of Islamic finance, in June Indonesia raised a $3bn sovereign sukuk (Islamic bond) that will help fund sustainable development projects.

Highlighting the potential future growth of the segment, the CBI predicts that green bond issuances will crack the $1trn mark in 2023.

Social, sustainability and blue finance

Although green bonds are the most prominent form of climate-focused finance, the development and expansion of a number of other innovative financial instruments has also supported the shift towards decarbonisation.

For example, social bonds – which raise money for projects with positive social outcomes – and sustainability bonds – a mix of green and social bonds – have grown dramatically over the past two years on the back of attempts to build a sustainable platform for post-coronavirus economic growth.

Elsewhere, blue bonds have also gained traction throughout 2021, even while they account for a considerably smaller portion of market share.

Similar in their function to green bonds, blue bonds are debt instruments issued to support investment in marine-friendly initiatives and the blue economy.

Following the launch of the world’s first sovereign blue bond in 2018, when the Seychelles raised $15m from international investors to help fund the expansion of marine areas and improved governance of the fisheries industry, a number of institutions have since launched their own. For instance, in September the Asian Development Bank (ADB) issued its first ever blue bond, a $151m, 15-year issue that will finance ocean-related projects in Asia and the Pacific.

Meanwhile, in one of the more innovative developments in recent times, in September Belize launched a debt-for-nature swap as part of a strategy to restructure its sole sovereign bond.

The proposal consisted of Belize buying back its debt at a significant discount in exchange for increasing efforts to protect its marine environment.

While it was not the first debt-for-nature swap – Bolivia made the first such deal in 1987 – the development could set a precedent for emerging markets looking to raise funds, particularly given the increasing focus on environmental, social and governance metrics.

In particular, these tools are likely to appeal to island or coastal emerging markets, such as those in Latin America and the Asia-Pacific, many of which have suffered economically in recent years as Covid-19 gave rise to a sharp decline in tourism.

Funding the transition

In addition to funding new environmentally friendly projects, global financial markets have also turned to specific tools designed to ensure a responsible transition towards low-carbon sources of energy.

One of these is the transition bond. A relatively new class of debt instrument, transition bonds are used to fund a company’s transition towards reduced environmental impact or lower carbon emissions. They are often issued in fields that would not normally qualify for green bonds, such as large carbon-emitting industries like oil and gas, iron and steel, chemicals, aviation and shipping.

Although still a nascent segment, there were 14 transition bond issuances worth $5bn in the first nine months of the year, according to the CBI, accounting for more than half of the $9.9bn issued since their inception in 2018.

Elsewhere, the UN Climate Change Convention (COP26), held in Glasgow in November, provided a boost to other transition-related solutions.

Amid other emissions-based pledges, world leaders also agreed to reform global carbon markets and agree on a universal set of rules for carbon trading, seen as key tools in the transition towards decarbonisation.

In fact, many expect the development to lead to an increase in climate-friendly investment in lower-income nations.

Also in November, France, Germany, the UK, US and EU announced a groundbreaking plan to help fund South Africa’s energy transition.

With an initial commitment of $8.5bn, the partnership aims to save 1-1.5 gigatonnes of emissions over the next 20 years by accelerating South Africa’s shift away from coal and towards low-emission sources of energy.

Turning away from fossil fuels

The increase in demand for sustainable finance has naturally coincided with a move away from funding fossil fuel projects.

Indeed, on the sidelines of COP26 – where signatories agreed to “phase down” the use of coal, among other climate-focused commitments – 34 countries and four international finance institutions signed up to a separate pledge to end financing for “unabated” fossil fuel projects in overseas countries by the end of 2022.

This followed similar commitments made by China, Japan and South Korea, while earlier this year the ADB announced that it would no longer fund coal mining or oil and natural gas production and exploration.

In addition to governments and international institutions, a number of banks and major financial institutions including HSBC, Fidelity International and Ethos also agreed to end the funding of unabated coal at the Glasgow conference. In this, it joins major lenders like Citibank, which in April announced that it would stop financing thermal coal mining, with a view to eliminating its credit exposure entirely by 2030.

These examples have highlighted how large financial institutions can play a key role in the energy transition. On a similar note, the insurance industry has a potentially significant role to play in the shift towards decarbonisation.

In July eight of the world’s largest insurers and reinsurers – AXA, Allianz, Aviva, Generali, Munich Re, SCOR, Swiss Re and Zurich – established the Net-Zero Insurance Alliance, a UN-convened body that has the goal of transitioning their underwriting portfolios to net-zero greenhouse gas emissions by 2050.

This follows action from some global frontrunners such as Australian insurance giant Suncorp, which in 2019 announced that it would no longer invest in, finance or insure new thermal coal mines or power plants, and that it would not underwrite any existing thermal coal projects after 2025.

The company then went a step further last year, saying that it would no longer directly finance or insure new oil and gas projects, and that it would also phase out financing and underwriting for oil and gas exploration or production by 2025.

Combatting greenwashing

While broadly welcomed globally, these shifts towards green finance have increased calls for updated and more stringent rules on what constitutes sustainable finance.

Although many countries, institutions and stock exchanges have their own rules, there are concerns that a lack of universal guidelines could lead to widespread greenwashing from governments and private corporations alike, particularly in light of the rapid growth in green finance.

To help address the situation, in recent months China and the EU have collaborated on developing joint green investment standards, releasing a report in November that outlined how green investment guidelines could be aligned.

While still at an early stage, this type of cooperation is seen as necessary to facilitating the growth of green finance in the future.

Courtesy: Oxford Group

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SUSTAINABILITY & CLIMATE CHANGE

Lithium Boom: Zimbabwe Looks to China to Secure a Place in the EV Battery Supply Chain

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14 mins ago

May 20, 2024

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Chinese investors have flocked to Zimbabwe to secure lithium supplies, promising local development. But analysts warn Zimbabwe needs more robust governance for communities to reap the benefits. Reports Andrew Mambondiyani

Wonder Mushove stared blankly at plumes of red dust billowing into the sky as more than 30 trucks carrying loads of lithium ore rumbled past his newly-built house in Buhera, in eastern Zimbabwe.

The trucks drive by Mukwasi village on the dirt road linking the Chinese-owned Sabi Star lithium mine to the tarred highway. They travel through the border town of Mutare to the port of Beira in neighbouring Mozambique. From there, the lithium-containing minerals are loaded onto ships and exported to China – the world’s largest manufacturer of lithium-ion batteries.

The dust hung in the air after the trucks’ passage. Mushove and his family were among dozens of households displaced by the $130million-mining project, which began operating in May. They were relocated to new houses built by the mining company about a kilometre from their old homes.

And yet, Mushove is hopeful the mine could “uplift the area and put it on the world map,” he told Climate Home News. For decades, the vast, hard-rock lithium deposits buried under his home were of little interest to foreign investors. Now, Chinese companies are paying a high price to access Zimbabwe’s reserves – the largest in Africa and among the largest in the world.

A lightweight metal with the ability to store lots of energy, lithium is critical for the manufacture of batteries for electric cars. Global efforts to move away from combustion-engine vehicles have pushed demand for the silvery metal, also known as “white gold”, to soar.

Chinese companies have flocked to Zimbabwe’s untapped reserves of high-grade lithium to shore up the country’s supplies, benefiting from the Southern African nation’s cheap labour and deregulated mining sector. In the past two years, Chinese companies invested over $1.4 billion acquiring lithium projects in Zimbabwe.

And more money is on its way. Last year, Chinese companies were awarded licenses that could see $2.79 billion in investment flow into the country, mostly in the mining and energy sectors. These investments could turn Zimbabwe into a key player in the global lithium-ion battery supply chain. Chinese battery manufacturing giant BYD could source some of its lithium from Zimbabwe, after buying a stake in the Chinese owners of the Sabi Star mine.

But Zimbabwe’s poor progress on establishing robust resource governance threatens to keep communities like Mushove’s from seeing any of the benefits, analysts told Climate Home.

While endowed with vast mineral wealth, Zimbabwe has so far failed to turn its underground riches, including diamonds and gold, into revenues for development. Regulatory gaps, human rights abuses, illegal trade, and alleged corruption have all been barriers.

A recent investigation by NGO Global Witness in Zimbabwe, Namibia, and the Democratic Republic of Congo found that there is a danger of history repeating itself with lithium mining without rigorous screening for corruption and social and environmental harms.

But Zimbabwe’s president Emmerson Mnangagwa is betting on the lithium rush to catapult the country into an upper-middle-income economy by 2030. To achieve this, Mnangagwa aspires to turn Zimbabwe into a battery manufacturing hub.

China’s lithium rush

China towers over the lithium-ion battery supply chain. But its own lithium resources are limited and it has sought to secure access to deposits overseas.

Isolated by the West and slapped with 20 years of sanctions because of human rights violations, Zimbabwe has turned towards China, now the country’s largest foreign investor.

Since the 1950s, China’s foreign policy has been guided by “five principles of peaceful co-existence“, including a commitment not to interfere in another country’s internal affairs. This principle, which encapsulates China’s approach, has set it apart from western investors.

Zimbabwe’s “opacity and disregard for human rights has made it cheap for the Chinese to exploit minerals” in the country, said James Mupfumi, director of the Centre for Research and Development, a local NGO advocating for accountability in the natural resource sector.

Zimbabwean law vests all mineral rights to the president. With no requirements to disclose the beneficial owners of mining projects, “there is no due diligence and parliamentary oversight on Chinese investments,” Mupfumi explained.

“Above all, Zimbabwe requires a government that prioritises public accountability of mineral wealth, not the self-enrichment of a few political elites,” he added.

The ministry of mines did not respond to a request for comment.

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SUSTAINABILITY & CLIMATE CHANGE

EARTH DAY 2024: Packaging Is the Biggest Driver of Global Plastics Use

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4 weeks ago

April 23, 2024

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By Felix Richter,

The theme of this year’s Earth Day is “Planet vs. Plastics” – a theme chosen to raise awareness of the damage done by plastic to humans, animals and the planet and to promote policies aiming to reduce global plastic production by 60 percent by 2040.

As our chart shows, global plastics use has increased rapidly over the past few decades, growing 250 percent since 1990 to reach 460 million tonnes in 2019, according to the OECD’s Global Plastics Outlook, which projects another 67-percent increase in global plastics use by 2040 and for the world’s annual plastic use to exceed one billion tonnes by 2052. As our chart shows, packaging is the largest driver of global plastics use, which is why a rapid phasing out of all single use plastics by 2030 is one of the policy measures proposed under EARTHDAY.ORG’s 60X40 framework.

Other major applications of plastics include building and construction, transportation as well as textiles, with the fast fashion industry particularly guilty of adding to the world’s plastic footprint. “The fast fashion industry annually produces over 100 billion garments,” the Earth Day organizers write. “Overproduction and overconsumption have transformed the industry, leading to the disposability of fashion. People now buy 60 percent more clothing than 15 years ago, but each item is kept for only half as long.” Most importantly, the organization points out that 85 percent of disposed garments end up in landfills or incinerators, while just 1 percent are being recycled.

Felix Richter is a Data Journalist

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SUSTAINABILITY & CLIMATE CHANGE

The Sahara Desert used to be a Green Savannah – New Research Explains Why

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5 months ago

December 24, 2023

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By Edward Armstrong

Algeria’s Tassili N’Ajjer plateau is Africa’s largest national park. Among its vast sandstone formations is perhaps the world’s largest art museum. Over 15,000 etchings and paintings are exhibited there, some as much as 11,000 years old according to scientific dating techniques, representing a unique ethnological and climatological record of the region.

Curiously, however, these images do not depict the arid, barren landscape that is present in the Tassili N’Ajjer today. Instead, they portray a vibrant savannah inhabited by elephants, giraffes, rhinos and hippos. This rock art is an important record of the past environmental conditions that prevailed in the Sahara, the world’s largest hot desert.

These images depict a period approximately 6,000-11,000 years ago called the Green Sahara or North African Humid Period. There is widespread climatological evidence that during this period the Sahara supported wooded savannah ecosystems and numerous rivers and lakes in what are now Libya, Niger, Chad and Mali.

This greening of the Sahara didn’t happen once. Using marine and lake sediments, scientists have identified over 230 of these greenings occurring about every 21,000 years over the past eight million years. These greening events provided vegetated corridors which influenced species’ distribution and evolution, including the out-of-Africa migrations of ancient humans.

These dramatic greenings would have required a large-scale reorganisation of the atmospheric system to bring rains to this hyper arid region. But most climate models haven’t been able to simulate how dramatic these events were.

As a team of climate modellers and anthropologists, we have overcome this obstacle. We developed a climate model that more accurately simulates atmospheric circulation over the Sahara and the impacts of vegetation on rainfall.

We identified why north Africa greened approximately every 21,000 years over the past eight million years. It was caused by changes in the Earth’s orbital precession – the slight wobbling of the planet while rotating. This moves the Northern Hemisphere closer to the sun during the summer months.

This caused warmer summers in the Northern Hemisphere, and warmer air is able to hold more moisture. This intensified the strength of the West African Monsoon system and shifted the African rainbelt northwards. This increased Saharan rainfall, resulting in the spread of savannah and wooded grassland across the desert from the tropics to the Mediterranean, providing a vast habitat for plants and animals.

Our results demonstrate the sensitivity of the Sahara Desert to changes in past climate. They explain how this sensitivity affects rainfall across north Africa. This is important for understanding the implications of present-day climate change (driven by human activities). Warmer temperatures in the future may also enhance monsoon strength, with both local and global impacts.

Earth’s changing orbit

The fact that the wetter periods in north Africa have recurred every 21,000 years or so is a big clue about what causes them: variations in Earth’s orbit. Due to gravitational influences from the moon and other planets in our solar system, the orbit of the Earth around the sun is not constant. It has cyclic variations on multi-thousand year timescales. These orbital cycles are termed Milankovitch cycles; they influence the amount of energy the Earth receives from the sun.

On 100,000-year cycles, the shape of Earth’s orbit (or eccentricity) shifts between circular and oval, and on 41,000 year cycles the tilt of Earth’s axis varies (termed obliquity). Eccentricity and obliquity cycles are responsible for driving the ice ages of the past 2.4 million years.

The third Milankovitch cycle is precession. This concerns Earth’s wobble on its axis, which varies on a 21,000 year timescale. The similarity between the precession cycle and the timing of the humid periods indicates that precession is their dominant driver. Precession influences seasonal contrasts, increasing them in one hemisphere and reducing them in another. During warmer Northern Hemisphere summers, a consequent increase in north African summer rainfall would have initiated a humid phase, resulting in the spread of vegetation across the region.

Eccentricity and the ice sheets

In our study we also identified that the humid periods did not occur during the ice ages, when large glacial ice sheets covered much of the polar regions. This is because these vast ice sheets cooled the atmosphere. The cooling countered the influence of precession and suppressed the expansion of the African monsoon system.

The ice ages are driven by the eccentricity cycle, which determines how circular Earth’s orbit is around the sun. So our findings show that eccentricity indirectly influences the magnitude of the humid periods via its influence on the ice sheets. This highlights, for the first time, a major connection between these distant high latitude and tropical regions.

The Sahara acts as a gate. It controls the dispersal of species between north and sub-Saharan Africa, and in and out of the continent. The gate was open when the Sahara was green and closed when deserts prevailed. Our results reveal the sensitivity of this gate to Earth’s orbit around the sun. They also show that high latitude ice sheets may have restricted the dispersal of species during the glacial periods of the last 800,000 years.

Trucks driving through the desert. — The Sahara desert. Getty Images

Our ability to model the African humid periods helps us understand the alternation of humid and arid phases. This had major consequences for the dispersal and evolution of species, including humans, within and out of Africa. Furthermore, it provides a tool for understanding future greening in response to climate change and its environmental impact.

Refined models may, in the future, be able to identify how climate warming will influence rainfall and vegetation in the Sahara region, and the wider implications for society.

Edward Armstrong is a postdoctoral research fellow, University of Helsinki

Courtesy: The Conversation

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