Rachel Kyte's blog

The weekend in Copenhagen was characterized by a plunging thermometer outside - forcing demonstrators to wrap up ever warmer on the streets of the city. Inside the Bella Center, a whole new set of people have arrived, just as negotiations enter into in a fragile state. The second week is VIP week, and so we add around 200 limousines to the general melee.

But there is good news: huddled in various hotels and echoing "offices" in the delegation portakabins, national actions are being readied irrespective in some ways of the agreement reached.

And in the finance discussions, for the first time in a draft the words "private finance" appeared. The challenge of bridging the $10bn per annum (perhaps) that negotiators hope will be pledged as fast-start funding, to the $200bn or more indicated as necessary, will be resolved in off-site discussions between financiers, governments, some MDBs and others concerned to develop the ability to quickly leverage money to scale.

So now the drama really starts ratcheting up inside and out of the

Bella Center in Copenhagen. Outside in the kind of biting cold that

reminds you of standing (before stadium seating) in a fourth division

football match on a Saturday afternoon as a kid, thousands of people

are massing to march on the center - they say 50,000 and on the TV

screen it looks like it could be.

Inside, the entrenched positions see no sign of budging yet and the

negotiations are poised for the second week, normally characterized by

agreement only at the eleventh hour. (By the way: if you want to know

what's going on here, blow by blow, then read the Earth Negotiations

Bulletin (from the safety of your warm comfortable abode) - an

institution of international sustainable development for 20 years, it

is as ever indispensable (disclosure: i sometimes used to help them

out)).

A strange day in Copenhagen today. More and more people arriving and the building and the incredibly generous and helpful Danes straining to cope. The Bella Center beginning to look like a scene from a science fiction movie where the whole of humanity takes off from earth into some kind of space vehicle. The rumor, counter rumor, the side shows, the side events, the spontaneous demonstrations in the corridors, the more planned but no less emotional demonstrations by delegations in the plenary and working groups: is there life outside?

There were signs of life at Business Day in downtown Copenhagen. Here gathered the business lobby who believes it is part of the solution and who is straining in an atmosphere where it has no place at the international table, though it does at the national level. Yvo de Boer questioned how effective it has been so far both in letting national delegations know what it needs and what it can do, as well as how effective it can be in face of parts of the business lobby that clearly wants no agreement. 

Today IFC and S&P launched the Carbon Efficient Index for Emerging Markets. The index is designed to closely track the Investable Emerging Markets Index begun by IFC, but is now managed by S&P with 24% more carbon efficiency.

The methodology for measuring carbon efficiency was developed by Trucost, with the support of the UK's Department for International Development. 

We hope that within three years more than $1bn will be following the index. A modest hope, but it's a signal. More than $5 trillion of funds under management by institutional investors are passively invested. If between 1 and 2 percent are invested in emerging markets - then a small portion of that is where we start.

As we discuss the need for financing for climate change in developing countries, it is increasingly important that we think of emerging market entrepreneurs. Their access to long term finance supports their plans to grow efficiently, which is how we bring together developing country needs to grow with our overall climate change goals. Getting them evidence that investors care about carbon efficiency, now, is what will help their decision making and send that signal.

Delegates to the COP 15 need to understand that the success of these programs are dependent on the strength of the agreements they make over the next few days.

A lot of brouhaha has been brought about by The Guardian’s supposed steal on a leaked non-paper drafted by the Danes. Though the non-paper has been around for a while, the drama put fuel on the fire of the discomfort and sense of injustice felt by many developing country delegations. The other story dominating the headlines is bankers' pay. Let me try to link the two in the context of the financing discussions in Copenhagen.

In his recent piece in the MIT innovation journal Whose Rules, Vinod Khosla states that lowering the cost of capital could be the single most important action to mobilize private funds, which are needed to complement the public climate finance in order to achieve 450ppm by 2050. He notes that investors will invest in low-carbon technologies because there is a return, and not because there is a feel good factor, thereby facilitating the projects needed to allow developing countries to grow and meet the global targets for 2050.

IFC has made these investment for many years, mainly through GEF funds, but now with many partners including Climate Investment Funds, structuring finance and providing technical assistance. Our investments have included Water Health International and E+Co. The question is now one of scale.

But in Copenhagen the number for quick start funds is already up to $30bn (as Yvo de Boer has said, delegates came to Copenhagen to celebrate not commiserate). So it's only day two and people already feel it's all possible.

The masses are gathering for the first day of COP15 of the UNFCCC, but on Friday an important curtain raiser took place with the backing of the Danish government and convened by ATP, the Danish public pension fund. The “Key to Climate Investing" event gathered significant current and potential investors in the economic activities that will be necessary for a path to lower carbon intensive growth - they included funds, commercial banks, public pension funds and privately managed public pension funds from across Europe and the Americas.

The meeting was important for three reasons:

First, while oftentimes negotiators and the secretariat have indicated that they don't know what the private sector wants, in precise terms (presumably in terms of language), the investor community could not have been clearer or more unanimous: "we need you to act by setting targets, which will lead to an investment climate, and set incentives to encourage long term investment where it is needed.” 

Editor's note: Rachel Kyte is a Vice President, Business Advisory Services at International Finance Corporation. She is attending this year's UN Climate Change Conference in Copenhagen. You can follow her on Twitter.

And so Copenhagen begins. Or as the campaign posters peer out from you everywhere, is it time for “Hopenhagen”. The mix of Christmas lights, the early dark afternoons and a globe or photo display on every square do give the city an extraordinarily festive air as the expected 60,000 participants and hangers on arrive.

So, with hope in our hearts and something acutely more diminishing in our minds, we enter into the battle of the squared brackets.

The $10bn that is now being talked of as the “quick start” – sounds like a sort of feeding program for sickly implementation – is of course more than the $0 that was being talked about a few weeks ago, but is short of the emerging consensus number of around $200bn (depending on whether its WEF, Project Catalyst, IEA or World Bank Group that’s counting) needed each year for a decade. But such was the walking back of expectations in recent weeks, we may be euphoric, or is it the Christmas lights?

Carol Ann Duffy, the UK’s Poet Laureate put it well in the 12th stanza of her Christmas Poem The Twelve Days of Christmas 2009 by Carol Ann Duffy - Radio Times – did they twiddle their thumbs or hear the drums. The drums it seems were loud enough for Obama and now Singh to make the journey for the high level segment.

And then reading today’s Observer, the very funny Sandy Toksvig notes that in Danish there is a word for beauty through simplicity – “enkeldt”. It may be a useful thing to bear in mind as the tendency of the negotiations and the solutions spirals into the complex in the search for compromise. At the end of the day, we need a solution that allows those with no access to energy to have some, and those of us who already do, to be efficient and green in its generation and use. There is all the rest of course, but we cannot avoid the energy infrastructure story at the heart of the climate change debate. A beautiful solution would be as simple one as possible.

The recent spate of announcements by financial institutions looking forward to a world with a price on carbon - and their decisions to set a price for carbon in their own calculations on project viability or to adhere to generic principles on carbon which may influence the future shape of their portfolios - are the latest evidence of a world preparing itself for some kind of public policy context to emerge from international negotiations. But perhaps of equal significance is evidence that the risks and opportunities from managing exposure to carbon are seen as real and present, not potential and distant.

To dig down into performance and beyond rhetoric a number of challenges face financial institutions.

A carbon price helps one understand risk in a future where carbon carries a price, but how do you decide where to invest in carbon intensive projects and where not?

International financial institutions too need a clear climate change roadmap. While the Bali negotiations continue into the night, it is not too early to think about what the G8 when it meets in Japan in seven months should ask these institutions:

1. Leverage commitments from donors with private financial flows to a leverage number of their choice.
2. Come up with tools for developing countries and the firms that drive their economies to understand their adaptation risk and engineer financial products with the private sector to insure against and offset those risks.
3. Never use public aid funds to undermine the development of a market where a market may flourish and never act to become the market, but rather facilitate their creation.
4. Target subsidy to speed up the adoption of new clean technologies based on a carbon price.
5. Ask each institution to report its baseline for GHG emissions from its portfolio in FY09 with a goal to reduce over that baseline over time with criteria for exceptions based on meeting the energy access needs of the poorest countries.
6. Climate proof long range development programs.
7. Work with developing countries to create the investment climate necessary to support clean technology adoption, promote distributed, local renewable energy solutions, and water pricing policies.
8. Campaign against trade barriers that act against the interests of the climate change agenda.