Valerio Baselli: Climate change is one of the biggest parts of sustainable investing and one of the most important topics of the Morningstar Sustainable Investing Summit 2023 we are attending today in Amsterdam. Joining me now is keynote speaker, Ivo Mulder. He is Head of the UNEP Climate Finance Unit.
I would like to start asking you, Ivo, if you could describe what is the most important goal of your unit, what do you do to reach such a goal and what the biggest challenges are.
Ivo Mulder: So, first of all, if you look at renewable energy and energy efficiency investments, there's lots of changes that are happening in all parts of the world. More buildings are becoming energy efficient. There's now more offshore and onshore wind being developed. But if you look at our food system, it's responsible for about a quarter of global greenhouse gas emissions, it's responsible for about 70% of tropical deforestation. So, unless we tackle that, that means changing our own food habits to be more plant-based and less meat-based, but also looking at what kind of incentives farmers need to be given in developing countries to change their practices. So, the biggest challenge that we have, the biggest objective that we have is that more private capital from impact investors, from banks and institutional investors are directed in such a way that it creates positive nature, climate and people impact.
And how we do that? We've created a number of so-called blended finance mechanisms where public money is blended with private capital to essentially reduce the cost to some extent and the risk for those investors who want to be first movers but who don't want to take the full risk of the transition that we need to see. And one of the biggest challenges is, first of all, that lots of companies have made commitments but they're not walking the talk. The second, that it takes a long time for governments and multilateral funds to make public money available. And related to that, the urgency of the crisis that we are facing is not in line with the speed that we are walking, basically, at the moment.
VB: Very interesting. Of course, COP28 is approaching. It will take place late November in Dubai. Last year, COP27 has left many with bitterness, I would say. So, what are your expectations for this edition, your hopes and your fears?
IM: Well, the fears is that, like COP27, there will be limited progress. At the same time, one of the rays of hope in Egypt was the fact that the Loss and Damage Fund was created, but a lot of the architecture was not put in place. So, I would hope that there's clarity on how it will be capitalised, who will fund it, and who is going to be eligible. And second, I would hope that there's going to be mandatory targets to phase out fossil fuel investments, and that countries talk in earnest about phasing out fossil fuel subsidies as well.
VB: Absolutely. Finally, we live in a time of extreme climatic events, even here in Europe, and we saw that. At the same time, we have been experiencing an energy crisis following the Russian invasion of Ukraine. So, two different situations that I think worry people and frighten people sometimes. There is always this trade-off, this balance to be found between the path towards a cleaner economy and possible consequences on people's lives. And I think we saw that in the strong economic crisis that hit Sri Lanka last year. So, what do you think about that? And people in power, the decision makers, is this something that they must bear in mind?
IM: Yes, absolutely. I mean, politicians obviously need to listen to the fears that people have and take them along the journey that needs to be taken. At the same time, there's never a good time to change. Like, when things go well, people say, why change? And if things go bad, let's wait. Now there's the crisis in Ukraine and Russia. Before that, there was the COVID crisis, and before that, the European sovereign debt crisis. At the same time, the cost of inaction, the financial cost of inaction, is going to rise rapidly. And so, we do have to act. There's also an opportunity for changing. I mean, lots of European countries have scaled up investments in renewable energy and energy efficiency following the crisis in Ukraine.
But to your point, in Sri Lanka, for example, if changes are too abrupt, then it can also lead to people putting their feet in the sand. And it is, of course, important for governments to take people along the journey and basically say why change is needed, but also provide the caution to make sure that people's livelihoods are not affected and are affected as little as possible.
VB: Very clear. Thank you so much, Ivo. For more content on the Sustainable Investing Summit, please check any of our international websites. In the meantime, for Morningstar, I'm Valerio Baselli.
