Hi and welcome back to the Climate Nexus finance newsletter – a regular update that looks at the big stories and players at the intersection of climate change, finance, regulation, and energy, with tips for the week ahead.
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Development banks face growing scrutiny
The annual meetings of the International Monetary Fund and the World Bank Group kicked off Monday, with climate finance and an emerging debt crisis on top of the agenda. The institutions have a crucial role to play in promoting clean energy and adaptation across the developing world, and are facing mounting calls by global climate leaders, Larry Summers, US Treasury Secretary Yellen, and others for reform. World Bank leadership has also come under fire, with President David Malpass facing a push to resign.
Scrutiny over the legitimacy and scale of World Bank climate finance is growing, with a new report by Oxfam finding the Bank’s reported climate-related spending cannot be independently verified – and could be off by as much as 40% – or nearly $7bn. Worse, new research by The Big Shift Global also finds the Bank has provided nearly $15bn of finance directly to fossil fuel projects since the 2015 Paris Agreement.
The World Bank’s leadership may want to check out the latest IMF World Economic Outlook, which found that the costs of failing to act on climate change would dwarf the short term economic costs of the shift to renewables – potentially costing the global economy between 0.15-0.25 percentage points of GDP growth annually between now and 2030. This comes as new research from Bloomberg NEF finds that investment in renewable energy must quadruple by 2030 to reach net-zero emissions by 2050.
German reinsurer Munich Re said it will no longer invest in or insure financing, planning, construction, or operation of oil and gas fields, midstream infrastructure, or oil-fired power plants. However, these exclusions still allow for investment in some fossil infrastructure including LNG terminals or gas-fired power plants. Re-insurers have been both significant investors in fossil fuels and face losses from mounting, concurrent extreme weather events. Campaigners, including Rainforest Action Network and BankFwd, are hoping that this has a wider impact, cascading across the reinsurance and property casualty insurance industries. Other reinsurers facing scrutiny include SCOR, Lloyd’s, and most major US firms.
From risk to return
An overlooked report from Credit Suisse made the rounds last week, finding that the Inflation Reduction Act could spark five times the climate spending as its $374bn price tag. The multiplier comes from the fact that many of the tax credits are uncapped, and the spending tends to spur even more follow-on investment from the private sector. If the bank is right, that $1.7 trillion is more in line with Build Back Better levels, and is surely one reason money continues pouring into this space. Last week saw two more firms raise roughly half-a-billion – long-term storage provider Form and climate tech VC Activate.
Louisiana, South Carolina shift investments to… backers of ESG
Louisiana will pull $794 million out of BlackRock’s funds, and South Carolina too has signaled it will pull $200 million by the end of the year. This would be a lot more alarming were it not for the fact that Louisiana’s Treasury Department reinvested the withdrawn funds in another Net Zero signatory asset manager – JP Morgan. South Carolina’s business went to Federated Hermes, then sponsor of the State Financial Officers Foundation, a right-wing group that both South Carolina and Louisiana’s Treasurers are members of. Federated Hermes, however, also heavily touts its ESG efforts and has subsequently stopped backing SFOF. BlackRock has responded to red-state Treasurer’s bluster by setting up a website to fight misinformation - Energy Investing: Setting the record straight. It’s not quite clear who the website is for or what it’ll achieve. Meanwhile, demand for ESG investment continues to outstrip supply.
Today: New Report from Global Energy Monitor - Finance Industry Coal Restrictions Have Not Stopped New Coal Due to Billions Flowing to Coal Plants Through Opaque Corporate Finance - let us know if you want press materials!
