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3rd Annual OECD Green Investment Financing Forum (GIFF)
In association with the Asian Development Bank Institute (ADBI)
October 13-14 2016
Tokyo
Rintaro TamakiDeputy Secretary GeneralOrganisation for Economic Co-operation and Development
DISCLAIMER: This presentation is solely for the use of the intended audience. No part of it may be circulated, quoted or reproduced without prior written approval from the OECD. This presentation represents the views of the author alone and unless specifically stated, does not represent opinions, estimates or forecasts of the OECD or its member countries. This material was used during an oral presentation; it is not a complete record of the discussion.
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Regional cost of selected climate impacts
Uncertainty ranges in 2060 dueto uncertainty in ECS
-7%
-6%
-5%
-4%
-3%
-2%
-1%
0%
2010 2020 2030 2040 2050 2060
-South & South East Asia
OECD Pacific
Rest of Europe & Asia
OECD Europe
Latin America
OECD America
World
-Sub Saharan Africa
Middle East & North Africa
Source: OECD ENV-Linkages calculations in OECD (2015) Costs of Inaction on Environmental Challenges: Insights from a NAEC project
Breaking the tragedy of the horizon: 3 climate-related financial sector risks
Physical risks: • Impacts on insurance liabilities and
value of assets that arise from climate- and weather-related events
Liability risks: • Impacts that could arise if parties who
have suffered loss/damage from effects of climate change seek compensation from those held responsible
Source: Carney, M (2015), Bank of England: http://www.bankofengland.co.uk/publications/Pages/speeches/2015/844.aspx
Transition risks: • Financial risks which could result from
process of adjustment towards a lower-carbon economy.
• Changes in policy, technology and physical risks could prompt value reassessment of range of assets as costs and opportunities become apparent.
• The abruptness with which such re-pricing occurs could influence financial stability.
2
Rethinking the governance of institutional investments
OECD is undertaking a review of governance standards around investment decisions
• Institutional investors’ duties towards their beneficiaries
• What these mean for the integration of ESG factors • How institutional investors manage (financial) risks
and opportunities linked to green investments / climate change
– Linkage with corporate carbon disclosure • Identify effective approaches regarding investment
governance and green finance
OECD analysis will seek to rethink governance and assess how “green” risks and opportunities can be incorporated more systematically into investment decisions.
Too few institutional investors include the financial impacts of environmental factors in their investment process• Short-term focus• Difficulty balancing
conflicting interests of beneficiaries
• Lack of standardised models and analytical tools
• Limited expertise and resources
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1% of large OECD pension fund assets invested directly in infrastructure
LARGE OECD PENSION FUND
ASSETS
USD 10 trillion
Source: OECD Global Pension Statistics, Global Insurance Statistics and Institutional Investors databases,and OECD staff estimates. (1) Public Pension Reserve Funds, (2) Other forms of institutional savings* Direct unlisted equity investment by large OECD pension funds, covering $10+tn* * BNEF estimates
<1%
INFRASTRUCTURE INVESTMENT
(direct)
* <3%.
**
GREEN INFRASTRUCTURE
INVESTMENT (direct)
4
Source: OECD, 2015: http://dx.doi.org/10.1787/9789264224582-en
Ensure a stable “investment grade” policy environment - evaluate and fix unintended regulatory impacts
Address market failures (incl. lack of carbon pricing & remove fossil fuel subsidies)
Provide a national infrastructure road map & pipeline
Facilitate the development of liquid financing instruments (e.g. green bonds) and risk mitigants
Promote market transparency, disclosure, standardisation and improve data availability
Reduce the transaction costs of green investment
Establish a “green investment bank” or refocus existing public financial institutions
OECD policy recommendations for G20 and Climate Finance Ministers: Overcoming barriers and greening institutional investors
Establish pre-conditions for institutional investmentBarriers to institutional investment• Weak, uncertain or
counterproductive environmental, energy and climate policies
• Regulatory policies with unintended consequences
• Lack of suitable financial vehicles with attributes sought by institutional investors
• Shortage of information. knowledge and data to assess portfolios and investments and underlying risks/returns
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OECD Progress Report on Approaches to Mobilising Institutional Investment for Green Infrastructure (Sept. 2016)G20 Green Finance Study Group (GFSG)
33
MDBs: > 33%
GIBs: 25%
National-level PFIs: > 25%
Equity investment: 50%
Investment at construction: most
involving
6Source: OECD (2016) Progress Report on Approaches to Mobilising Institutional Investment for Green Infrastructure
Composition of the green bond market (as of August 2016, USD Bn, gross issuance)
*Note: SSA: Sovereign, Supranational and Agency / ABS: Asset Backed Securities / Other Corporate includes Consumer, Industrials, Technology sectors, 2016 as of AugustSource: OECD (2016 forthcoming) based on Bloomberg and Climate Bonds Initiative data
77
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Potential for low-carbon bond issuance to 2035 in a 2 degree scenario:In China, Japan, EU and US (in the renewable energy, low-emission vehicle and energy efficiency in buildings sectors)
1003005007009001,1001,3001,5001,7001,900
-500
500
1,500
2,500
3,500
4,500
5,50020
1520
1620
1720
1820
1920
2020
2120
2220
2320
2420
2520
2620
2720
2820
2920
3020
3120
3220
3320
3420
35
Ann
ual b
ond
issu
ance
in fo
ur
regi
ons
($bn
)
bond
s ou
tsta
ndin
g in
four
regi
ons
($bn
)
Amount outstanding Issuance
Source: OECD (2016) A Quantitative Framework for Analysing Potential Bond Contributions in a Low-Carbon Transition
OECD Centre on Green Finance and Investment
MISSION
HOW?
WHEN?
Promote policies, institutions and instruments to mobilise GF&I
• A global platform for knowledge exchange
• Analysis leveraging expertise of OECD and stakeholders
• Collaboration to address knowledge gaps, market challenges
• Launched today Green Investment Financing Forum (13 Oct)
• Build out the Centre over 2017-18
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