June 9, 2024 • 14 mins
Welcome to the first episode in our series on climate finance. I'm Nishant Malhotra, the sole founder of The Middle Road, a platform focusing on global development and financial services. In this episode, I explore how climate finance is reshaping our global ecosystem.
- Lets begin by defining climate finance and discussing its importance in climate action, including investments in clean technologies and climate resilience projects. I also look into innovative financial tools such as sustainable development bonds and carbon pricing mechanisms.
- Key actors in the climate finance sector, such as governments, public institutions, and asset managers, are highlighted, along with the role of multilateral development banks like the World Bank and its divisions.
- Discussion about a milestone in the ESG sector, the MSCI KLD 400 Social Index, and its impact on sustainable finance. Additionally, I introduce my business consulting initiative, focusing on ESG and sustainable investment strategies.
- Finally, discuss the rapid growth of renewable energy capacities worldwide, driven by significant investments and subsidies. Stay tuned for more insights in upcoming episodes!
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Hello everyone, welcome to the first episode in a small series on climate finance.
I'm Nishant Palotra, the solo founder of The Middle Road, a for-profit,
social impact driven platform as a service startup focusing on the global development
and financial services sector.
Now in this series, I share a perspective on how climate finance is changing
(00:20):
our global social and business ecosystem.
I also hope to feature guests on this topic. Today, I'll introduce climate finance,
talk about a major actor in the sector, discuss a milestone in the ESG sector
and chat about my business consulting initiative.
Check out www.themiddleroad.org for online courses, reads and podcasts on ESG
(00:43):
and sustainable finance.
This may also include material posted on the middle road. To learn more about
my startup visit, I've already spoken about it.
But if you want to look at the business consulting initiative,
you could check out www.themiddleroadbusinessconsulting.com.
Let's start with what is climate finance.
Climate finance is a subset of sustainable finance or sustainable investing
(01:06):
that focuses on climate action.
It involves investing in technology, products or services that address climate
mitigation and climate reduction. option.
Climate mitigation includes investing in projects or technologies that reduce
greenhouse gas emissions.
For example, cleantech or clean technologies.
They are an excellent case of climate mitigation.
(01:29):
When discussing greenhouse gas emission, carbon dioxide and methane gas are
often the main focus, while other gases like nitrogen.
Nitrous oxide are sometimes overlooked there
are other you could read uh you know i've discussed
in newsletters more about
greenhouse gas emissions so you could look at all the breakup
(01:50):
climate adoption on the other hand focuses on
projects or technologies that help adopt to climate
change by building resilience such as flood banks
that serve as a bulwark against flood climate finance
also includes capacity building for organizations working
in climate action sector climate finance
tools include financing clean tech technologies and
(02:14):
innovative social financing tools like sustainable development bonds as well
as green blue sustainability and sustainable development bonds which i spoke
about intended finance which is something written quite a bit on the middle
road is another tool that has become popular for financing both social social,
and environmental interventions with remarkable impact.
(02:35):
Now, IFC, a division of the World Bank, often uses this financing mechanism
to blend private and public capital as a part of its agenda of attracting private
capital within sustainable development.
Carbon markets, including carbon pricing mechanisms such as carbon taxation
and emissions trading schemes, are other innovative tools.
(02:57):
The EU is the first region actually was to implement an ETS structure which I spoke about.
The EU region has been a global leader in best ESG practices and a powerhouse
of innovation within the climate finance sector.
In its states, California also
implemented its own ETS known as the California Cap and Trade Program.
(03:18):
The world has come a long way in carbon markets.
About a decade ago, carbon pricing policies covered 7% of global emissions.
Now it's about a quarter according to the World Bank.
Now in 2023, revenues from carbon markets and various innovative carbon pricing
schemes and instruments reached a record $104 billion.
(03:39):
China has implemented the largest ETS in the world, covering more than 5 billion
tons of carbon dioxide from more than 2,200 fossil fuel power plants,
according to International Carbon Action Partnership.
Many countries have carbon pricing mechanisms.
For example, Indonesia is implementing a carbon pricing mechanism similar to
(04:02):
the Emissions Trading System ETS, which I spoke about for specific sectors.
The Indian government is exploring the possibility of implementing a carbon
pricing mechanism in the future.
This is a positive step towards reducing greenhouse gas emissions and combating climate change.
As this series progresses, I will discuss an excellent example of climate finance,
(04:24):
which is results-based climate finance.
Keep checking out the middle road I spoke about to read about various social
financing tools. There's also an online course on impact bonds.
Harley says that you enroll.
You can check it out under the online courses section. Now let's come to actors within this sector.
There are many actors within the climate finance sector.
(04:44):
Country directorials play the most critical role.
Others include governments and public institutions, asset managers such as impact
investors, pension funds, venture philanthropists and corporates.
Equity and debt markets are the marketplace that focus on facilitating climate
finance. Investment products include equities, fixed income,
ETFs, and private equity, etc., which are just some of the investment products
(05:08):
within the climate finance sector.
Insurance products and derivatives are other products used within climate finance.
An excellent example of parametric insurance is Catastrophic or known as Cat Bonds.
Now, the Cat Bonds have been covered on the middle road.
You could check it up under the Insights section. Cataphoric bonds just to sort
(05:30):
of tell you in a nutshell are financial instruments designed to transfer risk
to third party when an event strikes such as an earthquake or tsunami.
Now, Chile being prone to natural calamities has opted for insurance against these events.
The World Bank created Catbonds specifically for Chile serving as insurance
(05:51):
against the aforementioned events.
This was a 630 million financial structure.
Comprising 350 million cat bond and 280 million cat swap.
You could refer to the educational read on cat bonds on this topic on the middle road.
Let's begin with the multilateral which I was talking about.
(06:12):
Now, whenever we talk about development banks, one of the major or the most
significant would be the World Bank. It's the largest in the development sector.
Other multilaterals would include International Monetary Fund,
IMF, Asian Development Bank, African Development Bank, European Investment Bank,
Nordic Development Bank, and Inter-American Development Bank,
among others. So these are just a few. There are also others.
(06:34):
I just wanted to name a few of them. The World Bank is a significant enabler
alongside the IMF within the international development sector.
Headquartered in Washington, D.C., USA, the World Bank is owned by 189 countries,
which also serve as its clients.
It is one of the world's largest sources of development finance.
(06:54):
The exact amount of loans outstanding and the number of countries can vary,
so it's best to check the most recent data.
Bank's mission is to end poverty on a livable planet.
It this is sort of the main you know mission of
the of the world bank and the largest shareholders are u.s
japan china germany france and
(07:14):
the uk the bank has five divisions the most two important divisions are the
international bank for reconstruction and development which is ibrd and the
international development association ida others are ifc which is very important
ifc will We'll keep coming to IFC, International Finance Corporation.
The MIGA, which we say Multilateral Investment Guarantee Agency and International
(07:38):
Center for Settlement of Investment Disputes.
The World Bank raises capital towards member countries, the private sector and
other financing activities.
Since its inception in 1944, the
World Bank has financed more than 20,000 projects through IBRD and IDA.
These divisions are separate entities and
(08:00):
ibrd ida and ifc are rated
triple a there's going to be a small business model which i feel i would be
able to get in the video version i'll try to see how we can at least have business
model which is actually mentioned by the world bank that you can look at it
ibrd is the original member of the world bank groups established to rebuild europe Europe,
(08:21):
from the devastation of World War II,
it soon came to be referred to as the World Bank.
From 1960s, the banks started focusing on elevating extreme poverty.
IBRD now finances loans to the middle-income countries.
IBRD issues World Bank bonds. To date, it has raised about $1 trillion in capital
(08:42):
with a major share loan on to middle-income countries at consensual rates.
It has issued sustainable development bonds targeting environment and social outcomes.
IBRD is a major climate finance champion. 92% of all the projects financed in
2023 had a climate finance component.
(09:02):
Now, this has been taken from the World Bank Bonds for Sustainable Development.
Now, IBRD is a major climate finance champion. 92% of all the projects financed
in 2023 had climate finance component.
IDA, on the other hand, issues bonds and provides grants, mostly concession
loans to lower income countries.
(09:23):
It key focuses on social sector, particularly vulnerable sections of the society.
It is financed through its member
countries and since 2018 through bonds issued in the capital markets.
Both IBRD and IDA share an overarching mission of removing poverty for a better
livable planet by financing projects in the sustainable development sector.
(09:45):
The bonds and the loans target social themes such as health,
jobs, gender, education, climate and fragility.
Environmental themes include pollution and climate change.
The multilateral institution earns money through interest on these loans and
through advisory and consulting services. IFC promotes development by financing
(10:07):
private sector enterprises in developing countries.
It is the largest multilateral attracting private capital for the development sector globally.
Now we come to a major ESG milestone. I'll discuss MSCI KLD 400 Social Index.
MSCI KLD 400 Social Index is the first equity index linked to,
(10:29):
it's a socially responsible index.
This index marked a cornerstone for the intersection of ESG,
which is Environmental, Social and Governance and Financial Markets.
1990 is the year ESG received the major boost, is when this index was launched.
This is the fourth step in the transformative journey of sustainable finance.
May 1990, the MSCI KLD 400 social index was listed.
(10:54):
The index consists of about the largest 400 US companies by market capitalization
with an outstanding ESG rating.
The index does not include companies that have a negative impact.
As of May 31, 2024, Microsoft, NVIDIA, Alphabet A, C, and Tesla were the top
(11:15):
five companies in the portfolio.
Information technology, financials, and healthcare are among the top three sectors
of the company within this index.
I will speak a bit about the business initiative I have launched.
This is the consulting initiative which I spoke about.
Board middle road business consulting is your one-stop solution
for a comprehensive range of consulting services services tailored
(11:36):
to your organization's needs my expertise actually spans across various domains
which is a sub initiative from the middle road is the esg and esg investing
i can help you navigate the complex landscape of esg factors to make more informed
investment decisions and enhance your organization's sustainability profile material social and
impact materiality, I assist you in identifying and prioritizing the social
(12:00):
and environmental issues that are the most relevant to your stakeholders and your bottom line,
enabling you to create tangible, long-lasting impact.
Now, there are other various initiatives like venture philanthropy and capacity building.
You could look at the site www.themiddleroadbusinessconsulting.com.
You'll have a much better idea.
You could also write to me at nishant at the rate, the business consulting,
(12:23):
the middle businessconsulting.com.
Or you could also write to nishant at the rate the middle road dot org.
Main idea you could write to is nishant at the rate the middle road business
consulting dot com. Coming up, I wrap up today's session.
We'll just look at renewables at a glance. According to International Energy
Agency, IEA, the global annual renewable capacity additions increased by almost
(12:49):
50% to nearly 510 gigawatts in 2023,
the fastest growth rate in the past two decades.
IEA estimates China to have almost 60% of the new renewable capacity expected
to become operational globally by 2028.
The World Bank has estimated that governments globally are increasingly deploying
(13:10):
increased subsidies within the green energy space.
The key focus are clean technology and faster adoption of renewables.
China and US are the lead in giving the givers of the subsidy programs followed
by Australia, Canada and the European Union, the EU.
The proliferation of electric cars is driving increased investments in EV adoption
(13:36):
along with climate initiatives.
Battery market is going to see significant boost. According to the renewable
energy world, the 112 billion battery market is going to grow by almost 400%
and it's expected to reach 546 billion by 2035.
China is a world leader in solar adoption like the EU which is like elites in wind power.
(13:58):
America on the other hand being the first country to drive innovation within
the renewable energy is lagging but of the late the renewable space is doing well.
In the US, America's total solar capacity
has officially increased surpassed to 200 gigawatts
and according to solar energy industries association it
is expected to double over the next five years growing to 438 gigawatts or even
(14:21):
more come to an end from the first edition on the podcast within the climate
finance series i you can i hope you found it to be useful and feel free to reach
out to me for any questions.
Hello everyone, welcome to the first episode in a small series on climate finance.
I'm Nishant Palotra, the solo founder of The Middle Road, a for-profit,
social impact driven platform as a service startup focusing on the global development
and financial services sector.
Now in this series, I share a perspective on how climate finance is changing
(00:20):
our global social and business ecosystem.
I also hope to feature guests on this topic. Today, I'll introduce climate finance,
talk about a major actor in the sector, discuss a milestone in the ESG sector
and chat about my business consulting initiative.
Check out www.themiddleroad.org for online courses, reads and podcasts on ESG
(00:43):
and sustainable finance.
This may also include material posted on the middle road. To learn more about
my startup visit, I've already spoken about it.
But if you want to look at the business consulting initiative,
you could check out www.themiddleroadbusinessconsulting.com.
Let's start with what is climate finance.
Climate finance is a subset of sustainable finance or sustainable investing
(01:06):
that focuses on climate action.
It involves investing in technology, products or services that address climate
mitigation and climate reduction. option.
Climate mitigation includes investing in projects or technologies that reduce
greenhouse gas emissions.
For example, cleantech or clean technologies.
They are an excellent case of climate mitigation.
(01:29):
When discussing greenhouse gas emission, carbon dioxide and methane gas are
often the main focus, while other gases like nitrogen.
Nitrous oxide are sometimes overlooked there
are other you could read uh you know i've discussed
in newsletters more about
greenhouse gas emissions so you could look at all the breakup
(01:50):
climate adoption on the other hand focuses on
projects or technologies that help adopt to climate
change by building resilience such as flood banks
that serve as a bulwark against flood climate finance
also includes capacity building for organizations working
in climate action sector climate finance
tools include financing clean tech technologies and
(02:14):
innovative social financing tools like sustainable development bonds as well
as green blue sustainability and sustainable development bonds which i spoke
about intended finance which is something written quite a bit on the middle
road is another tool that has become popular for financing both social social,
and environmental interventions with remarkable impact.
(02:35):
Now, IFC, a division of the World Bank, often uses this financing mechanism
to blend private and public capital as a part of its agenda of attracting private
capital within sustainable development.
Carbon markets, including carbon pricing mechanisms such as carbon taxation
and emissions trading schemes, are other innovative tools.
(02:57):
The EU is the first region actually was to implement an ETS structure which I spoke about.
The EU region has been a global leader in best ESG practices and a powerhouse
of innovation within the climate finance sector.
In its states, California also
implemented its own ETS known as the California Cap and Trade Program.
(03:18):
The world has come a long way in carbon markets.
About a decade ago, carbon pricing policies covered 7% of global emissions.
Now it's about a quarter according to the World Bank.
Now in 2023, revenues from carbon markets and various innovative carbon pricing
schemes and instruments reached a record $104 billion.
(03:39):
China has implemented the largest ETS in the world, covering more than 5 billion
tons of carbon dioxide from more than 2,200 fossil fuel power plants,
according to International Carbon Action Partnership.
Many countries have carbon pricing mechanisms.
For example, Indonesia is implementing a carbon pricing mechanism similar to
(04:02):
the Emissions Trading System ETS, which I spoke about for specific sectors.
The Indian government is exploring the possibility of implementing a carbon
pricing mechanism in the future.
This is a positive step towards reducing greenhouse gas emissions and combating climate change.
As this series progresses, I will discuss an excellent example of climate finance,
(04:24):
which is results-based climate finance.
Keep checking out the middle road I spoke about to read about various social
financing tools. There's also an online course on impact bonds.
Harley says that you enroll.
You can check it out under the online courses section. Now let's come to actors within this sector.
There are many actors within the climate finance sector.
(04:44):
Country directorials play the most critical role.
Others include governments and public institutions, asset managers such as impact
investors, pension funds, venture philanthropists and corporates.
Equity and debt markets are the marketplace that focus on facilitating climate
finance. Investment products include equities, fixed income,
ETFs, and private equity, etc., which are just some of the investment products
(05:08):
within the climate finance sector.
Insurance products and derivatives are other products used within climate finance.
An excellent example of parametric insurance is Catastrophic or known as Cat Bonds.
Now, the Cat Bonds have been covered on the middle road.
You could check it up under the Insights section. Cataphoric bonds just to sort
(05:30):
of tell you in a nutshell are financial instruments designed to transfer risk
to third party when an event strikes such as an earthquake or tsunami.
Now, Chile being prone to natural calamities has opted for insurance against these events.
The World Bank created Catbonds specifically for Chile serving as insurance
(05:51):
against the aforementioned events.
This was a 630 million financial structure.
Comprising 350 million cat bond and 280 million cat swap.
You could refer to the educational read on cat bonds on this topic on the middle road.
Let's begin with the multilateral which I was talking about.
(06:12):
Now, whenever we talk about development banks, one of the major or the most
significant would be the World Bank. It's the largest in the development sector.
Other multilaterals would include International Monetary Fund,
IMF, Asian Development Bank, African Development Bank, European Investment Bank,
Nordic Development Bank, and Inter-American Development Bank,
among others. So these are just a few. There are also others.
(06:34):
I just wanted to name a few of them. The World Bank is a significant enabler
alongside the IMF within the international development sector.
Headquartered in Washington, D.C., USA, the World Bank is owned by 189 countries,
which also serve as its clients.
It is one of the world's largest sources of development finance.
(06:54):
The exact amount of loans outstanding and the number of countries can vary,
so it's best to check the most recent data.
Bank's mission is to end poverty on a livable planet.
It this is sort of the main you know mission of
the of the world bank and the largest shareholders are u.s
japan china germany france and
(07:14):
the uk the bank has five divisions the most two important divisions are the
international bank for reconstruction and development which is ibrd and the
international development association ida others are ifc which is very important
ifc will We'll keep coming to IFC, International Finance Corporation.
The MIGA, which we say Multilateral Investment Guarantee Agency and International
(07:38):
Center for Settlement of Investment Disputes.
The World Bank raises capital towards member countries, the private sector and
other financing activities.
Since its inception in 1944, the
World Bank has financed more than 20,000 projects through IBRD and IDA.
These divisions are separate entities and
(08:00):
ibrd ida and ifc are rated
triple a there's going to be a small business model which i feel i would be
able to get in the video version i'll try to see how we can at least have business
model which is actually mentioned by the world bank that you can look at it
ibrd is the original member of the world bank groups established to rebuild europe Europe,
(08:21):
from the devastation of World War II,
it soon came to be referred to as the World Bank.
From 1960s, the banks started focusing on elevating extreme poverty.
IBRD now finances loans to the middle-income countries.
IBRD issues World Bank bonds. To date, it has raised about $1 trillion in capital
(08:42):
with a major share loan on to middle-income countries at consensual rates.
It has issued sustainable development bonds targeting environment and social outcomes.
IBRD is a major climate finance champion. 92% of all the projects financed in
2023 had a climate finance component.
(09:02):
Now, this has been taken from the World Bank Bonds for Sustainable Development.
Now, IBRD is a major climate finance champion. 92% of all the projects financed
in 2023 had climate finance component.
IDA, on the other hand, issues bonds and provides grants, mostly concession
loans to lower income countries.
(09:23):
It key focuses on social sector, particularly vulnerable sections of the society.
It is financed through its member
countries and since 2018 through bonds issued in the capital markets.
Both IBRD and IDA share an overarching mission of removing poverty for a better
livable planet by financing projects in the sustainable development sector.
(09:45):
The bonds and the loans target social themes such as health,
jobs, gender, education, climate and fragility.
Environmental themes include pollution and climate change.
The multilateral institution earns money through interest on these loans and
through advisory and consulting services. IFC promotes development by financing
(10:07):
private sector enterprises in developing countries.
It is the largest multilateral attracting private capital for the development sector globally.
Now we come to a major ESG milestone. I'll discuss MSCI KLD 400 Social Index.
MSCI KLD 400 Social Index is the first equity index linked to,
(10:29):
it's a socially responsible index.
This index marked a cornerstone for the intersection of ESG,
which is Environmental, Social and Governance and Financial Markets.
1990 is the year ESG received the major boost, is when this index was launched.
This is the fourth step in the transformative journey of sustainable finance.
May 1990, the MSCI KLD 400 social index was listed.
(10:54):
The index consists of about the largest 400 US companies by market capitalization
with an outstanding ESG rating.
The index does not include companies that have a negative impact.
As of May 31, 2024, Microsoft, NVIDIA, Alphabet A, C, and Tesla were the top
(11:15):
five companies in the portfolio.
Information technology, financials, and healthcare are among the top three sectors
of the company within this index.
I will speak a bit about the business initiative I have launched.
This is the consulting initiative which I spoke about.
Board middle road business consulting is your one-stop solution
for a comprehensive range of consulting services services tailored
(11:36):
to your organization's needs my expertise actually spans across various domains
which is a sub initiative from the middle road is the esg and esg investing
i can help you navigate the complex landscape of esg factors to make more informed
investment decisions and enhance your organization's sustainability profile material social and
impact materiality, I assist you in identifying and prioritizing the social
(12:00):
and environmental issues that are the most relevant to your stakeholders and your bottom line,
enabling you to create tangible, long-lasting impact.
Now, there are other various initiatives like venture philanthropy and capacity building.
You could look at the site www.themiddleroadbusinessconsulting.com.
You'll have a much better idea.
You could also write to me at nishant at the rate, the business consulting,
(12:23):
the middle businessconsulting.com.
Or you could also write to nishant at the rate the middle road dot org.
Main idea you could write to is nishant at the rate the middle road business
consulting dot com. Coming up, I wrap up today's session.
We'll just look at renewables at a glance. According to International Energy
Agency, IEA, the global annual renewable capacity additions increased by almost
(12:49):
50% to nearly 510 gigawatts in 2023,
the fastest growth rate in the past two decades.
IEA estimates China to have almost 60% of the new renewable capacity expected
to become operational globally by 2028.
The World Bank has estimated that governments globally are increasingly deploying
(13:10):
increased subsidies within the green energy space.
The key focus are clean technology and faster adoption of renewables.
China and US are the lead in giving the givers of the subsidy programs followed
by Australia, Canada and the European Union, the EU.
The proliferation of electric cars is driving increased investments in EV adoption
(13:36):
along with climate initiatives.
Battery market is going to see significant boost. According to the renewable
energy world, the 112 billion battery market is going to grow by almost 400%
and it's expected to reach 546 billion by 2035.
China is a world leader in solar adoption like the EU which is like elites in wind power.
(13:58):
America on the other hand being the first country to drive innovation within
the renewable energy is lagging but of the late the renewable space is doing well.
In the US, America's total solar capacity
has officially increased surpassed to 200 gigawatts
and according to solar energy industries association it
is expected to double over the next five years growing to 438 gigawatts or even
(14:21):
more come to an end from the first edition on the podcast within the climate
finance series i you can i hope you found it to be useful and feel free to reach
out to me for any questions.
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