Category: Finance

Corporate funding for solar surges in Q1, but venture capital eyes are on storage, Mercom finds

Read the full story at Utility Dive.

While investors increasingly seek solar company stocks for reliable returns, energy storage is the new rising star of energy venture capital, according to Raj Prabhu, CEO of the Mercom Capital Group.

After a steady recovery in the third and fourth quarters of 2020, total corporate funding for the solar sector rose 21%, from $6.7 billion in Q4 2020 to $8.1 billion in Q1 2021, according to a recent report by MercomA second report found that venture capital investment in battery storage, smart grid and energy efficiency companies is up 410% year-over-year.

Solar, an increasingly mature industry, is now largely seen as a reliably profitable investment, attracting fewer but larger deals, Prabhu said. Storage still brings in far less investment but is drawing in venture capitalists looking for the next big energy technology.

As climate concerns grow, how is it getting cheaper to finance gas in the US?

Read the full story at Utility Dive.

It appears global financial institutions are beginning to price in the energy transition and associated climate risks — except when it comes to oil and gas. 

That’s a key finding of an important new study released by a team of researchers led by Ben Caldecott at the University of Oxford Smith School of Enterprise and the Environment. Poring over financial transaction data that spans two decades, the team sought to answer a basic question — are financial markets pricing in climate risk? The answer it turns out is not that simple and frankly, a bit disturbing.

Emerging market green debt sales to soar past $100 billion

Read the full story from Bloomberg.

Emerging market green bond issuance will more than double by 2023 to exceed $100 billion, according to two of the biggest players in the sector.

Want tax incentives in Des Moines? Be ready to meet higher energy efficiency bar

Read the full story at Energy News Network.

Midwest cities including Des Moines, Iowa, are increasingly linking tax-increment financing to sustainability requirements as they look for every tool possible to make progress on ambitious climate goals.

Public International Funding of Nature-Based Solutions for Adaptation: A Landscape Assessment

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Overall, the amount of public international funding flowing to nature-based solutions (NbS) for adaptation is still relatively small, accounting for only US$3.8–8.7 billion, or approximately 0.6–1.4 percent of total climate finance flows1 and 1.5–3.4 percent of public climate finance flows, in 2018.

Funding for NbS for adaptation (NbSA) in 2018 was driven by a handful of major bilateral donors, including Germany, the United Kingdom, Japan, and Sweden. The European Union, Asian Development Bank, the Green Climate Fund, and the International Fund for Agricultural Development were among the largest multilateral donors and channels of funding. Countries in Sub-Saharan Africa and South and Central Asia received approximately 50 percent of total public NbSA funding.

Funding in 2018 came primarily through grants. Though grants may play an important role, utilizing a broader range of instruments for NbSA may increase the opportunities to crowd in and catalyze private capital with public concessional finance.

The absence of clear definitions, guidelines, and metrics and methodologies to track, quantify, and value NbSA benefits may significantly inhibit the development and financing of a robust pipeline of NbSA-related investments.

Some NbSA projects do not provide reliable revenue streams, making it important to find other ways to fund long-term operational costs. To scale up and mobilize additional sources of funding, the full economic and financial case for NbSA—including co-benefits—needs to be clearly communicated.

General Mills in revolving credit facility tied to sustainability

Read the full story at Food Business News.

General Mills, Inc. announced it has renewed its five-year $2.7 billion revolving credit facility, which now includes a pricing structure that is tied to environmental impact metrics. The initiative makes General Mills the first US consumer packaged goods company to implement a sustainability-linked revolving credit facility.

Build Back Better Homes: How to Unlock America’s Single-Family Green Mortgage Market

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The vast majority of America’s housing stock is in need of improvements for performance, health, and safety. Over the next decade, shifts in utility models, energy and climate policy, weather events, and recognition of health and resilience priorities will greatly expand this need. This is especially true for low- to moderate-income households and communities of color. Even though better housing infrastructure offers societal benefits, there is little access to low-cost financing. Therefore, the cost burden for these kinds of improvements largely falls on homeowners.

Among capital markets investors, there is growing interest and demand for environmental, social, and governance (ESG) investment options and “green” securities. However, there is a lack of sufficient market-ready green investments. The mortgage industry is well positioned to help fill this gap. Mortgages can become a primary investment vehicle for deploying billions of dollars to meet this investor demand while also fulfilling consumer demand for green home improvements.

A robust single-family green mortgage market can deliver significant benefits and investor-ready ESG impacts. Fannie Mae and Freddie Mac could generate more than $2 trillion of new green mortgage-backed securities within a decade by streamlining and scaling up their existing green mortgage products.

This report proposes practical solutions to reduce friction in originating and securitizing single-family green mortgage products already offered by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac to create a new $2+ trillion market within a decade.

Climate Roadmap for U.S. Financial Regulation

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This report, prepared with the input of dozens of experts, provides a detailed “playbook” for financial regulators to integrate climate risk into their oversight responsibilities. It is organized in three broad parts: the first focuses on personnel, staffing, and agency organization across the U.S. financial regulatory system; the second on supervision and prudential regulation; and the third on capital markets regulation. These recommendations were prepared in the lead-up to the Biden Administration taking office and were shared during the transition process.

Banking on Climate Chaos 2021: Fossil Fuel Finance Report

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This report analyzes fossil fuel financing from the world’s 60 largest commercial and investment banks — aggregating their leading roles in lending and underwriting of debt and equity issuances — and reveals that these banks poured a total of USD $3.8 trillion into fossil fuels from 2016–2020. Fossil fuel financing dropped 9% last year, parallel to the global drop in fossil fuel demand and production due to the COVID-19 pandemic. And yet 2020 levels remained higher than in 2016, the year immediately following the adoption of the Paris Agreement. The overall fossil fuel financing trend of the last five years is still heading definitively in the wrong direction, reinforcing the need for banks to establish policies that lock in the fossil fuel financing declines of 2020, lest they snap back to business-as-usual in 2021.

Rising Temperatures, Falling Ratings: The Effect of Climate Change on Sovereign Creditworthiness

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Enthusiasm for ‘greening the financial system’ is welcome, but a fundamental challenge remains: financial decision makers lack the necessary information. It is not enough to know that climate change is bad. Markets need credible, digestible information on how climate change translates into material risks. To bridge the gap between climate science and real-world financial indicators, we simulate the effect of climate change on sovereign credit ratings for 108 countries, creating the world’s first climate-adjusted sovereign credit rating. Under various warming scenarios, we find evidence of climate-induced sovereign downgrades as early as 2030, increasing in intensity and across more countries over the century. We find strong evidence that stringent climate policy consistent with limiting warming to below 2°C, honouring the Paris Climate Agreement, and following RCP 2.6 could nearly eliminate the effect of climate change on ratings. In contrast, under higher emissions scenarios (i.e., RCP 8.5), 63 sovereigns experience climate-induced downgrades by 2030, with an average reduction of 1.02 notches, rising to 80 sovereigns facing an average downgrade of 2.48 notches by 2100. We calculate the effect of climate-induced sovereign downgrades on the cost of corporate and sovereign debt. Across the sample, climate change could increase the annual interest payments on sovereign debt by US$ 22–33 billion under RCP 2.6, rising to US$ 137–205 billion under RCP 8.5. The additional cost to corporates is US$ 7.2–12.6 billion under RCP 2.6, and US$ 35.8–62.6 billion under RCP 8.5.

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