Climate Finance – A Primer

4 minutes read

Climate change is altering the fundamentals of the global GDP outlook. GDP is contracting each year due to the effects of increasing flood, drought, hurricanes, cyclonic storm surges and rising sea levels. Lord Nicholas Stern in his groundbreaking work on the true costs of climate change, modeled a basic numerical equation that stated globally we need to invest 1% of global GDP, or we risk losing several percent of GDP annually. The old saying of a stitch in time saves 9, holds true today even more so than before.

In fact Stern’s models were conservative about how slowly the climate systems would start breaking down. The permafrost is melting much more rapidly than predicted, with 200 times more nitrogen oxide warming gases than previously modeled, and key important glaciers such as in Greenland and Antarctica, are melting 100 times faster.

What does all of this mean for the optimistic economic models put forward over a decade ago? It means they are generally too conservative and most likely wrong. This information hasn’t trickled down into the awareness of political and business leaders, and many policy makers in terms of a step up in climate finance and investments. There are interesting corporate examples such as BHP Billiton (BHP) stepping up, with the CEO recently announcing that climate change was a very serious threat that needed dealing with. BHP simultaneously announced a $400M fund to decarbonise and it getting on with the job. A recently released a paper by Breakthrough National Centre for Climate Restoration states that there is “a disturbing picture of the real possibility that human life on earth may be on the way to extinction, in the most horrible way.” The paper argues that “climate change now represents a near to mid-term existential threat to human civilisation,” and calls for a recalibration in how governments respond to estimated climate scenarios so they take worst case projections more seriously. The new report, co-written by a former executive in the fossil fuel industry, is a harrowing follow-up to the Breakthrough National Centre for Climate Restoration’s 2018 paper, which found that climate models often underestimate the most extreme scenarios.

Endorsed by former Australian defence chief Admiral Chris Barrie, the message is simple: if we do not take climate action in the next 30 years, it is entirely plausible that our planet warms by 3°C and that human civilisation as we know it collapses.

Under this scenario, the authors explain, the world will be locked into a “hothouse Earth” scenario, where 35 percent of the global land area, and 55 percent of the global population, will be subject to more than 20 days a year of “lethal heat conditions, beyond the threshold of human survivability.” (source: 

Examples of government and corporate leadership stepping up in regards to the more severe climate scenarios are rare. Going on the record, stating that the depth of the threat is far beyond what business and governments have planned for, and communicating it clearly, is something the financial community needs to encourage, before the window of opportunity to act decisively, is gone. Thus far, the usual response is to downplay the risk and kick the can down the road. More corporates are coming out and stating it is no longer tenable, to kick the climate can down the road, otherwise the risk we face will start to turn into an existential risk. This is especially the case given what we now know about the Permian Age extinction event, where the sea released massive amounts of methane, killing over 90% of all species as reported in the paper published in the journal Palaeoworld. The extinction event was directly tied to warming climate and oceans, that inverted ocean water layers and released large methane deposits that sit on our ocean floors.

The greater the data set the financial community accumulates, it means that, increasingly it looks like 2%-3% of global GDP will be needed to avoid catastrophic climate change. It is widely thought that Stern’s estimate of spending 1% GDP was too conservative, and that spending 2%-3% on climate change is required, but this may also achieve many of the SDGs if it is done correctly. This means we need to spend about $1.84 trillion per year to avoid runaway climate change. The question then becomes who will provide that climate finance and investment, and who will deliver the money into on ground projects and also communities? Large banks are ill equipped to deal with small to medium cap bonds and equity investments, which is largely what the world needs in emerging and developing markets. Large infrastructure bonds and investments are well taken up by the large players, but it is the smaller size tickets $250M and under that suffer lack of liquidity and secondary market trading, which in turns dampens investor demand. Increasing adoption and demand in marketplaces for small to medium cap climate and green bonds, are key areas BCI is active in developing investment and finance strategies with our partners.

Given that large banks and multilateral banks are not covering the small to medium cap bonds and direct investment markets, Blockchain & Climate Institute (BCI) is exploring the significance of markets to provide on the ground investment and finance, and the the of the private sector and NGOs to collaborate to deliver finance and investment to those who need it the most, The BCI helps bring decision makers and stakeholders together and prototype climate finance and investment delivery with the innovative use of blockchain and finance mechanisms.