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?
The carbon footprint of the average US citizen is multiples that of a
Cameroonian, for example. So, in a carbon constrained world, but also a
world where the energy access needs of the poor are critical, what
other instruments will global financial institutions, public and
private need to make necessary carbon intensive investments?
How do you know what carbon intensity you have in your portfolio today?
Portfolio measurements of carbon exposure on an agreed methodology are
partially complete if at all for most financial institutions. Without
that baseline knowledge again, how do you know which carbon to add to
your portfolio or how much?
Following Bali there is a lot of excitement and anticipation around potential new
sources of funding to come alongside investments to bring down the cost
of installing a cleaner technology project than would have not been
considered feasible under normal conditions. This is welcome to be able
to help the Cameroon's of this world install energy production, with
cleaner, more efficient technology, sooner. But will this be enough.
How do we take the analysis that has clearly taken place at Bank of
America, JP Morgan et al and take up the discussion with sovereign
funds, the large bilateral development banks in emerging markets and
the banks in emerging markets, where most green house gases emitting
projects are going to be installed in the next few years? These are the
sources of funding in the main.
At the IFC we're chewing over these issues
and many more as part of our climate change strategy development. We've
got some exciting stuff going on - but we're always looking for other