The $25 Trillion Potential for 2030

LSEG’s Group Head of Sustainability Jane Goodland speaks to Nigel Topping, COP26 UN High-Level Champion for Climate Action, to discuss the roadmap towards net zero and the critical role that the financial services industry must play in climate action.

The conversation focuses on how the mobilisation of financial capital, along with solutions that pool intellectual capital, are helping non-state actors to drive private investment into emerging markets and other key areas of sustainable finance.

The Net Zero Conversations series was filmed at the Net Zero Delivery Summit, hosted by the City of London Corporation in association with the COP 26 UK Presidency 2022 and the Glasgow Financial Alliance for Net Zero (GFANZ).

Nigel, welcome and thank you for joiningus on Net Zero Conversations.So Nigel, you are the High-level Climate Action Championof the United Nations.Can you tell us a bit about what that means in practice?It's a long title. Well, it'sa role that was created as part of the Paris Agreement.So, you remember Paris was the real breakthrough whenwe really agreed the NorthStar of getting to zero and themechanism for ratcheting ambition.But what the 196 countries who agreedthe Paris Agreement also recognizedwas that national governments can't do this on their own,we need to mobilize the whole of society.So they created this role to work with non-state actors,so finance, private business, cities,states and regions who all haveresources and sometimes rule-making powers,innovation capability, but implementation capability.And so the idea is to work withall of those onset actors to driveambition and action in support of the Paris Agreements'three pillars, getting to zero,building a resilient futureand mobilising the finance to do that.So talking about finance then,what's the role and your view ofthe finance sector to really help governments get,get this transition going?Well, we know that we need about another $2 trillion a year.That's just in emerging markets, itsabout $3.5 trillion globally, by2030 to invest in the zero-carbon future,which causes a much better and bigger economy,like about $25 trillion biggerby 2050. But national governments, again, can't do on their own.About 70% of that will need to be private finance.So private finance needs to be, I meanI would say, again, an innovation partner in driving that finance,not just, not just an execution partner.Because some of that investment is inareas that we haven't invested a lot inthe past, in investing in adaptation,which has a different kind of cash flow profile,investing in emerging markets which haven't beenmajor investment destinations before.So it's both the delivery of the capital,but it's also the intellect to helpdesign solutions which use limited government capital,both locally and multilaterally,to create the conditions to crowd ina lot more private finance to solve the problem.And so COP26 was kind of termed the finance COP.What progress have you seen since COP26?Well, I guess it was called the finance COP maybe because of the launchof the Glasgow Finance Alliance for Net Zero,which Mark and I launched inApril last year and we brought together to do that,the race to zero,which we had launched the year before to createrobust platform for mobilising economic actorsto get to zero. And we usedthat robust entry criteria ofa credible commitment as the entry criteria forGFANZ. And then GFANZ, of course, collaboratesover a lot more than just those.But most of the GFANZ members, the 450 pluswho we had by Glasgow,only joined between our launch in April and Glasgow.So the number one thing we need to see fromGFANZ members is fulfilling their Race toZero commitment, to actually then publishtheir plans that are in line withthe science of getting to zero by 2050,that represent a fair share of halving emissions by 2030,and the plans to get there sector by sector.And of course the shape of those differswhether they're an asset manageror an asset owner of bank or insurer.But that's the main thing we need to see,And that, I'd say for the individual members,is the main bit of work that's been going on,turning the headline commitment into an actual plan.And then of course, at GFANZwe've been putting the team together,which I think we stood up pretty quicklysince the Gottman, and been working onquite a quite strong agenda of implementing plans,advocating for the kind of changes needed inmultilateral finance to do more of what Mark callscarbon leverage, to getmore climate finance out of a pound ora dollar of multilateral or bilateral public money,so that we get more private money in.And in particular to focus on how do wemobilize the capital needed in emerging markets,which is one of our big challenges.And that's what I wanted to pick up onreally in terms of how,in real terms. can weattract private investment into markets,into areas or technologiesthat perhaps historically haven't reallyattracted that type of interest, because forwhatever reason it might notbe seen as an attractive investment?How do we overcome that barrier?I think there are multiple things that need to change.Of course, so it depends on what the sector we'retalking about investing in and what the geography.So, we need multilateral finance,which is limited, to be more focused onleveraging in private financerather than crowding it out.But we also need private financeto go exploring in countrieswhere maybe it's written off for10 years or 20 years or 30 years, right?Because we know thatan awful lot of infrastructure investmentin the world that's gonna be needed to get to,well, that's going to happen anyway,and that will need to be done in a net-zerocompliant way if we're going to get to net zerois going to happen in emerging markets.So if international private financedoesn't, doesn't go in there,we'll have a lot of bad infrastructurebuilt which is going to exacerbate.I mean, there's a few things that need to change.The way that the limited amount of public money,multilateral finance is deployed, needs to be morefocused on leveraging in private finance, whatMark calls carbon leverage rather than just deployment.So, we need to stop hearing about how much moneythe World Bank is deploying,and more talking about how much they're bringing in altogether.So instead of getting a one-to-oneleverage ratio, getting one to three.And a lot of that will be about using that moneyto both de-risks. So de-risksome of the things whichmaybe increased across the capital, likecurrency risk or policy risk,but also to help create the capabilitiesneeded to turn a project pipelineinto an investable pipeline.And so some of the things that we're workingon as a GFANZ community right now,are on some of these specific country platforms.And in fact, I've just had several conversations heretoday with bankers andministers about the difference betweena project plan forenergy transition and an investable pipeline.And that needs some investment banking skillsand as well as some asset,asset owner requirements to make sure that what maybe you've technically avery competent plan turns into an investable plan.I mean one of the things thatcomes to mind for me is some ofthe big pension funds saying thatunless the ticket size is several hundred millionbecause they've got such big pools of capitalto deploy that they won't enter the game.And so if you present a $10, $50 milliondollar projects and their minimum ticket sizeis $200 million. Well, thank you.but it just doesn't meetmy minimum criteria even in terms of ticket size.So if they're not involved in the design. YeahSo I think it'ssmarter use of limited multilateral capital.It's building capacity, but it's alsoabout bringing financial actorswho've not perhaps invested in Africa,into Africa to learn that maybe actually,the risk is maybe lower than they thought. I mean, the risk ishigher for something thatyou have that you don't actually know about it.Because it's kind of like Egypt or Nigeria or Kenya, who are actually quitesophisticated and a long way alongtheir transition planning and alreadyattracting significant amounts of investment,but need a bigger pool of capital to draw.So I think it's also about educatingthe international financial community about the,about the bigger opportunitiesand the lower risks that existin parts of the world where they might nothave played. Yeah, absolutely.And I think we're seeing innovation in all pockets of, well,real economy sectors, as well asfinance sector and voluntarycarbon markets spring to mind.Is that something that you can see asone of the ways that wecan get kind of a financeflowing around the system and in a more efficient way?I don't know about more efficient, but it's a bitmore distributional in termsof Global North investing in Global South. Yeah.Because of course, most of that investment will be innature-based solutions like restoringmangroves or restoring degraded land.And most of those opportunities are in the Global South.So, I think large and liquid,which will mean have to mean robust, likewith very high levels of standardson the supply and the demand side,I think are going to be a partof that architecture that allows us todeploy more private finance in emerging markets, yes.And a final question, if I may.We are looking at COP27.In your opinion, what would be the one thing wereally need to make that summit a success?I think the thing that we really need isa very strong sense that is evidencefrom both deals and commitments and policy changes,that finance is starting to flow in emerging markets,that is driving development as wellas driving the race to Zero.It's not an either or. AndI think that if we,the Egyptian government are very keen on makingthis all about implementation,not about new commitments.I think we still need new commitments because noteveryone's got enough ambition,but the real thing we need to seeis actual evidence of change on the ground insome of those vulnerable countries,that are both the mostsusceptible to climate riskand have the biggest development opportunity ahead of themAbsolutely. Nigel Topping, thank you very much.Thank you.

Terms of use

The content and information (“Content”) in the program (“Programs”) is provided for informational purposes only and not investment advice. You should not construe any such Content, information, or other material as legal, tax, investment, financial, or other professional advice nor does any such information constitute a comprehensive or complete statement of the matters discussed. None of the Content constitutes a solicitation, recommendation, endorsement, or offer by the London Stock Exchange Group (LSEG), its affiliates or any third-party service provider to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature, is illustrative only and does not address the circumstances of any particular individual or entity. LSEG and its affiliates are not a fiduciary by virtue of any person’s use of or access to the Programs or Content. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Content in the Programs before making any decisions based on such information or other Content. In exchange for accessing and/or participating in the Program and Content, you agree not to hold LSEG, its affiliates or any third-party service provider liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the Program. LSEG and its affiliates make no representation or warranty as to the accuracy or completeness of the Content. LSEG disclaims all liability for any loss that may arise (whether direct, indirect, consequential, incidental, punitive or otherwise) from any use of the information in the Program. LSEG does not recommend, explicitly nor implicitly, nor suggest or recommend any investment strategy. LSEG and its affiliates do not have regard to any individual’s, group of individuals’ or entity’s specific investment objectives, financial situation, or circumstances. The views expressed in the Program are not necessarily those of LSEG or its affiliates. LSEG and its affiliates do not express any opinion on the future value of any security, currency, or other investment instrument. You should seek expert financial and other advice regarding the appropriateness of the material discussed or recommended in the Program and should note that investment values may fall, you may receive back less than originally invested and past performance is not necessarily reflective of future performance.