Without a global finance plan, the climate moonshot will fail

November 29, 2021 RAO Global

We are always grateful for the time our speakers give to RAOGlobal events but the reality is that this isn’t just something they speak about for a day, a week or a month. The reality of Responsible Investing is what they live with every single day of their lives. Perhaps none more so that Dr Steve Waygood of Aviva Investors who has deliver two outstanding keynotes for the Americas and Europe, leading people to review their thinking

If the world is to achieve the goals of the Paris Agreement, the international financial architecture needs far stronger coordination under a re-tooled OECD, writes Steve Waygood.

On a sunny afternoon in September 1962, President John F. Kennedy strode onto the football field at Rice Stadium in Houston, Texas. Addressing the crowd from a podium on the turf, he announced his government’s ambition to put a man on the moon by the end of the decade. His speech is justly famous for its vivid rhetoric, which captured imaginations across the world.

To do all this, and do it right, and do it first before the decade is out, then we must be bold

President John F. Kennedy

“We set sail on this sea because there is new knowledge to be gained, and new rights to be won, and they must be won and used for the progress of all people,” Kennedy said. “To do all this, and do it right, and do it first before the decade is out, then we must be bold.”

What is less remembered is the note of pragmatism in the speech: Kennedy went on to explain precisely how the US would achieve this monumental feat. He outlined the role of NASA in leading the Apollo missions and specified the amount of additional funding the government would make available to turn America’s spacefaring dream into reality – the “staggering sum” of $5.4 billion a year.1

The climate moonshot

The fight against climate change is often likened to Kennedy’s “moonshot”, and with good reason. Like the moon missions, it will require ambition, expertise, and an unprecedented marshalling of resources. But there are key differences.

For a start, climate change, with its globe-spanning effects and multidimensional feedback loops, is a much more complex technical problem than spaceflight – and far more expensive to solve. The International Energy Agency estimates it will cost at least $1 trillion a year to move the world economy onto a net-zero carbon basis.2 That dwarfs the total outlay on the Apollo missions, which came to $25 billion (around $150 billion today, taking inflation into account).

Climate action is also hampered by a lack of coordination. Imagine if Kennedy had set his target without articulating a plan, and simply trusted public agencies and institutions – along with private companies with wildly divergent incentives and interests – to find a way to deliver it. That’s a good analogy for the current state of the climate financing effort in the wake of the Paris Agreement – a space programme without NASA.

To mobilise the capital needed, we are relying on a patchwork of different organisations, most of which emerged in the service of a short-termist, shareholder-driven capitalist model that has proven wholly inadequate to the climate challenge. And although there are plenty of well-meaning climate initiatives, they are too often working at cross purposes.

A new role for the OECD

This is why Aviva Investors, as part of a coalition of 38 institutions from across the industry, is calling for reform of the global financial architecture ahead of the G20 meeting in Rome and the Conference of Parties (COP26) in Glasgow. By bringing together governments, multilateral organisations and financial institutions to implement an ambitious and coherent planning effort, we have an opportunity to deliver a smooth and just transition for the global economy.

Our central recommendation is that the OECD assumes a new role as convenor and host of an International Platform for Climate Finance

Our central recommendation is that the Organisation for Economic Cooperation and Development (OECD) assumes a new role as convenor and host of an International Platform for Climate Finance (IPCF).3 This facility would provide technical support to countries to help them deliver on climate commitments, advise large private financial institutions on how to scale up their own climate contributions, and develop an overview of financing needs and opportunities at a global scale.

At first glance, the OECD might seem an odd candidate to lead reforms to the financial system. The organisation is often described, not without justification, as a “rich countries’ club”, and its role in the global economy is not always clear. But there are several reasons why the OECD fits the bill.

First, it is the pragmatic choice. The OECD is already well-funded, at around €380 million annually. It is also connected with the member states of the G20 and the UN Framework Convention on Climate Change, along with financial standards setters such as the Bank for International Settlements, the Financial Stability Board (FSB) and the International Organisation of Pension Supervisors. This means it will be ready to hit the ground running, sparing us the costly – and politically fraught – process of building a new intergovernmental organisation from scratch.

The OECD will be ready to hit the ground running, sparing us the costly process of building a new organisation

Second, it has the necessary expertise. With 2,500 specialists on its staff, many of whom are well-versed in the intricacies of climate finance, the OECD will be able to provide the requisite technical assistance to developed and developing countries, helping them to build financing strategies for their Nationally Determined Contributions (NDCs), while also facilitating access to the resources of other multilateral institutions. In providing this support while expanding its membership, the OECD could shed the “rich countries” tag and foster truly global collaboration on climate finance.

Third, the OECD already has a track record of delivering an ambitious international capital allocation project. It was established in 1948 to administer the Marshall Plan, managing the funds that went towards reconstruction in Europe after the devastation of World War II. By leading the climate finance effort, the OECD would productively reconnect with its roots.

Lessons from history

In short, a re-tooled OECD-IPCF is the best way to coordinate action to drive a more sustainable future for the global financial system – to act as a NASA for the climate moonshot.

The forthcoming G20 and COP26 meetings present an ideal opportunity to put this plan into action

The forthcoming G20 and COP26 meetings present an ideal opportunity to put this plan into action. As a starting point, we recommend the G20 invite the OECD to develop proposals for a standing facility to provide a secretariat for the IPCF. The OECD will also need to update its Principles of Corporate Governance to integrate climate disclosures and start to factor net-zero country commitments into its assessment procedures for new members.

Over the longer term, the OECD could also host a biennial dialogue on transition strategy, comprising its members as well as representatives from international financial institutions, the UN Development System, key civil society and philanthropic players, and the private sector.

Connecting all levels of the system will be crucial – because reform isn’t just about directives from the top. For the financing effort to be successful, we must also galvanise the transition from the bottom up. One way to do this is to give individual investors everywhere more transparency on the climate implications of their pension holdings. Technological innovations, including digital tools with which individuals can make their voices heard at companies’ shareholder meetings, are already helping make the system more inclusive and democratic.4

One reason for the success of America’s moonshot was everyone involved knew what they had to do to make a difference

Think back to the NASA analogy: one reason for the success of America’s moonshot was the way high-level ambition translated into a wider sense of mission: everyone involved knew what they had to do to make a difference.

Famously, Kennedy’s visit to Houston in 1962 brought a chance encounter with a janitor who swept the corridors of the space centre. When the president asked what he was doing, the man replied: “I’m helping to put a man on the moon.”5

This is the kind of clarity of purpose we need to address the climate crisis. With a robust and coordinated global climate finance plan, we can ensure governments, multilateral institutions, companies and individuals work in harmony towards our shared goals. To do all this properly, before the planet burns, we must be bold.

Responsible Asset Owners Global Symposium

Without a global finance plan, the climate moonshot will fail

The climate moonshot

A new role for the OECD

Lessons from history

References