Climate Action

Andrew Grant on the importance of accelerating private sector investment in order to reach net zero

Ahead of the Sustainable Innovation Forum 2021, Climate Action caught up with Andrew Grant, Vice President at Moody’s ESG Solutions, to discuss the importance of accelerating private sector investment in order to reach net zero.

  • 07 October 2021
  • Rachel Cooper

Ahead of the Sustainable Innovation Forum 2021, Climate Action caught up with Andrew Grant, Vice President at Moody’s ESG Solutions, to discuss the importance of accelerating private sector investment in order to reach net zero.

How do you think we can mobilise $100 billion per year to support climate action around the world?

The major global economic powers have a key role to play in generating the $100 billion of annual climate financing pledged in the Paris Agreement for developing economies. While they have so far fallen short, President Joe Biden’s commitment to increase US climate finance to at least $11.4 billion per year by 2024 marks a positive step in the right direction, with further signals of intent from countries likely in the run-up to and during COP26 in Glasgow. Still, even if governments were to succeed in securing the $100 billion milestone, this would be nowhere near enough to meet estimated $3 trillion dollar SDG funding gap across emerging economies. It is essential therefore that private sector investment flows accelerate significantly to meet the challenge, which will require – amongst other considerations – the scaling up of credit enhancement and so-called “blended finance” to improve the risk-return profile and cut borrowing costs for specific climate projects. Sustainable debt markets will be an important part of the solution, and it is encouraging that total labelled bond issuance will come in around $1 trillion globally for all of 2021.

Climate Risk is Financial Risk’, how much will risk management in the financial sector be affected by the integration and implementation of climate risk in the global agenda? 

It’s already happening – any organization that isn’t integrating climate risk into risk management practices is behind the curve at this point. The risks are so fundamental and wide-ranging and will have varying impacts under any scenario – both the physical impacts of a warming world and the many market effects of the complete rewiring of the global economy’s energy system. Like all risk management, it’s a case of living with uncertainty and having to make decisions with incomplete information. Financial institutions can use emerging climate stress testing tools and techniques to explore their exposure to climate risk under different trajectories of both physical and transition risk and plan for a range of outcomes. Several regulators are already conducting climate stress tests for banks and insurers, and further requirements – and guidance – will likely materialise across the globe in the coming quarters.

Without standardised reporting, how do you think investors can move forward towards net-zero?

While climate disclosure has proliferated in quantity, so far the results of exercises like scenario analysis are often impossible to compare systematically. This comes down to a lack of quantification, different metrics, undisclosed assumptions and so on. Emissions data also has big gaps, in particular for scope 3 in certain sectors. There are a number of impactful initiatives that are pointing the way forward towards standardisation, but there is still further to go in the policymaking space so that standardisation is taken up on an international basis. In the meantime, organisations like Moody’s have tried to fill in the blanks and produced datasets that have more practical applications for users. The data may not always be complete, but it’s good enough to act on, and plenty of investors are using it today. This is particularly so given the urgency of action at this stage – we don’t have time to let the perfect be the enemy of the good.

How did you incorporate sustainability into your own career path, and why does this topic hold meaning for you personally?

It was partly fortune and being in the right place at the right time – I had left a role in private equity developing oil & gas and mining projects and wanted a new role where I could use my skills but at the same time was totally different in culture and objective. Climate change had always been something that was considered vague and far over the investment horizon, but as soon I was introduced to the concept of transition risk it made sense to me, and I could see it was an area that was underexplored and of huge importance in future. The field has evolved so quickly since then that it has been a constant process of learning and adapting, and it has been a privilege to work on a topic where you always feel at the cutting edge. As the subject matter links directly to my love of the natural world, I always feel part of something bigger and that my work helps make a contribution to the whole, however small.

Moody's are speaking at the Sustainable Innovation Forum 2021, to join them register here now.