Financial services promote a greener world

Posted on December 5, 2015 by madhavi

According to Michel Sapin, the French Minster of Finance, the financial sector is in the midst of a transition. Investors, insurers, and banks are at the center of the climate change activity. In a recent presentation at COP21 Sapin noted, “Climate change has immense opportunities. The future is low emissions.”

Principles for Responsible Investment, an investor initiative in partnership with UNEP and the UN Global Compact, corroborates Sapin and notes that investors must address the climate issue in their investment strategy.The organization promotes investor focus in sustainability as a fiduciary duty to shareholders.

In looking at investment data, it appears that many investors have embraced and take the duty seriously. From the organization’s report on trends in the private sector:

Private sector commitment to green investing is growing.
New green bond market exists and it is valued from 50 to 70 billion dollars.
Carbon price is a reality; presently more that 450 companies have set internal carbon prices.
Investor behavior is changing; portfolio decarbonization strategy is an accessible example.
Insurance scaling up both through both issuance and through investment portfolios. Insurers are shifting to low carbon investments

Looking ahead, to promote investor enthusiasm and enable stronger growth, regulatory authorities need to provide clear guidelines and frameworks. Prices need to be established for carbon and we need to stop subsidizing fossil fuels. Presently several carbon prices exist on global level but trading activity could be more efficient if there was an established market and a transparent carbon price. With carbon and greenhouse gas prices topics of discussion at COP 21, perhaps the UN agreement will assist in establishing a global market.

Will some be left behind? The significance of climate finance

Posted on December 3, 2015 by madhavi

For countries on the front lines of climate change, access, availability, and urgency of funding needs are significant. As an example, rising sea levels in Senegal and Gambia have already impacted agricultural production. Saltwater intrusion into agriculturally productive lands has reduced food production. Further, warming temperatures and resulting increased length of seasons have heightened health risks associated with vector borne diseases. The impoverished state of these countries does not position them to to enter world markets to offset domestic deficiencies through imports. The conditions they face cannot be attributed to a random occurrence, though. Instead the plight of Senegal and Gambia and many other least developed countries (LDCs), as well as small island developing states (SIDS), and landlocked developing countries (LLDCs) is one of significant challenges.

In spite of not being large emitters, the effects of climate change are disproportionately high for these countries; unlike developed countries, these countries have made negligible contributions to the increased speed of climate change, as presently observed. They are the poor, vulnerable, low-emitter nations that are negotiating for the right for climate finance from the developed world. However, funding for mitigation and adaptation projects has been limited. Recent commitments for funding, though on the surface robust to the casual observer, have not inspired confidence across all LDCs, SIDS, or LLDCs.

On Monday, the starting day of COP21, eleven developed countries made commitments to the Least Developed Country Fund (LDCF). Total pledges to the LDCF totaled $248 million. The sum was an auspicious signal, a numeric gesture in parallel with the phrase “no one left behind.” However, at a side event on the same day of the announcement, LDCs commented on the difficulty of accessing funding, the rigorous nature of the application process, and the limited appearance of urgency from funding bodies. Two days later, on Wednesday, at another side venue, other LDCs commented on the difficulty of access to funding and the need to develop national climate finance strategies. Cambodia noted that the prospects of international financing are good but the modes of financing remain uncertain and the process is slow. The Gambia noted that demand for LDCF resources exceed the funds available for approved projects.

Some observers have voiced that funding is perceived by the developed world as financial aid when it should be viewed as the promotion of the common good. A communal perception could foster access and availability of funding provided from developed countries to developing countries in a more expeditious manner.

Mary Robinson, the former President of Ireland, noted in her remarks in Monday, following the LDCF funding announcement, that climate change is a global problem, stating, “Climate change is a problem for all.” She went on to advocate, “The agreement itself needs to be people-centered. The needs of LDCs need to be heard.” At the close of the third negotiating day, it was not clear whether the needs of LDCs were being considered under no one left behind.

In the remaining twenty-four hours of the first phase of COP21, discussion will continue with respect to language that would expedite funding. Additionally, the amount of aggregate funding available to developing countries from 2020 onward remains outstanding. In a few more days the group work of COP21 will set the trajectory for climate finance as the world sets its course to recalibrate its relationship with the planet. The decision will be significant and will send a strong signal with respect to the balance of developing country needs and developed country committment.

Influential strangers: a journey home from COP 21

Posted on December 2, 2015 by madhavi

At an international meeting it only makes sense that the people you would end up meeting may be across the border from you! However, it is not necessarily expected that your new acquaintance would be across a state border. But the latter was just the case on my ride home this evening from COP21.

After three months of learning about the art of negotiation, my VLS colleagues, Bonnie Smith and Rachel Stevens, and I had had the opportunity to meet Thomas Fuitak, author, professor and founding member of Mediators without Borders International (MBBI) on our short bus ride from Le Bourget, the home of COP21, to the train station bearing the same name. Fuitak was an animated personality who at first asked questions related to our traveling trio’s experiences at COP21. However, after entertaining our questions and cautious prodding, he revealed his status as an author, mediator and relevant party of the Paris draft agreement (Agreement).

Our short-term companion was not a household name but one of the generally anonymous that is well known in his circle of expertise!

Professor and mediator, Dr. Thomas Fiutak founded the Conflict and Change Center at the University of Minnesota and is currently a Senior Fellow in the Technological Leadership Institute, and lecturer in Conservation Biology. Our engaged companion has trained mediators in the US, Canada, Europe, Asia and Africa and as is noted founding member of Mediators Beyond Borders International or MBBI. According to his University biography, his work with MBBI has taken him to Zimbabwe, Denmark, Germany, Mexico, Haiti, Thailand, and Panama. He presently leads the MBBI Climate Change team, which has Observer status within the United Nations Framework Convention on Climate Change. A past Executive Director of the International Association of Conflict Management and World Bank consultant, his first book Le Mediateur dans l’arene (The Mediator in the Arena) was published in France in 2009.

In his fifteen-minute companionship, Dr. Fiutak became an inspiration to us. His comments resonated with our threesome. He understood the insecurity of COP observation, the perspective of questioning the value of our naïve input and was quick to provide reassurance. His advice was that not everyone has the opportunity to observe or participate in a COP and therefore, we should personally acknowledge the value of our communications from just that simple a perspective. His commentary to us was amplified by his unpretentious comment on the potential insertion of language in the final Paris agreement that would provide ability for mediation to play a role in the continuous evaluation of the Paris Agreement. The latter is a significant incorporation for an anonymous bystander, who was a founding member of the voluntary organization of Mediators Beyond Borders International.

Expressing an unmet need: Indigenous plan for funding climate change

Posted on November 30, 2015 by madhavi

In a room with no name plates, paper table tents with pencil script provided the only identification of the panelists. A small but
engaged audience listened attentively and participated fully when the option of question and comment commenced. This side event at the UN COP21 focused on the rationale for the construction of the Indigenous Amazonian Fund.

In a seventy-five minute session, representatives of indigenous groups along with the leadership of Coordinadra de las Organizaciones Indigenas de la Cuence Amazonica (COICA) provided a clear message of why an Indigenous Amazonian Fund was needed. The topic and the panelists’ commentary resonated with the audience. The meeting in a venue noted for punctuality, ran over time and ended with a lining up of audience members to speak with Jorge Furagaro, COICA’s Head of Environment, Climate Change and Biodiversity.

Furagaro noted in his commentary, “Our people do not understand English, Spanish and French. They are not able to negotiate with authorities. Funds that are provided to assist the indigenous go to consultants but do not trickle down to the people on the ground in the communities.” He went on to state, “We need funds for more than capacity building and studies; this type of funding stays limited to the hotel and restaurants where people are gathering for review and assessment. Funding should go to the territories.”

The proposed Indigenous Amazonian Fund (FIA) would ensure that funding would go directly to meet the needs of the the indigenous inhabitants of the Amazon. These people are presently strained by the adverse impacts of both man-made ecosystem degradation and climate change. The fund as designed has included the elements that COICA, other indigenous groups and stakeholders have found to be missing from present funding mechanisms, such as the Green Climate Fund (GCF). The fund incorporates a guiding principle, which includes effectiveness and efficiency, autonomy, surveillence and transparency, participation and governance elements in its operational framework.

Furagaro provided that the design of the FIA, the overt inclusion of stakeholder engagement and transparency, facilitates the intention of the fund, whereas other funding mechabisms only appear to do so.

Prince Charles addresses COP 21

Posted on November 30, 2015 by madhavi

Prince Charles spoke at the opening of COP21 this morning. In his address the Prince restated that in March 2009 there were 100 months of business as usual left before irreversible climate change would be the global reality. He relayed that 80 of those months had now passed. He stated the urgency of the need for an outcome to address the now evident impact of global climate change. His comments reiterated the statement of Christina Figueres, who preceded him and announced that there has never been a time in history where the fate of so many was in the hands of so few. The Prince concluded by noting that the world knows what needs to be done, the cost is low 1.7% of global GDP, and his sincere hope that an agreement would be reached.

The Prince has been an advocate of the environment and established the International Sustainability Unit (I.S.U.) as part of the Prince’s Charities in 2010. The goal of the I.S.U. is to address development and environmental issues. Since its inception, I.S.U. has initiated programs in natural capital and climate resilience.

Economic growth and climate change

Posted on November 22, 2015 by madhavi

Each generation inherits a world that was created out of beliefs contemporary and relevant to a certain time. These beliefs affect prevailing values, values, which become embedded within the framework of decision-making. Often times, these values are based on beliefs that may no longer be understood, known or even correct. Nonetheless, they are transferred from one generation to the next and modified by another generation’s cumulative addition. From this perspective, a lack of understanding of the beliefs that comprise the framework of society can eventually be problematic. And this is evident in the present period.

Let’s take a step back to the 1930’s when Simon Kuznets developed a method for assessing the production capacity of an economy. The method, which earned him the Nobel Prize in Economics, provided the foundation for the calculation of the gross domestic product. By definition gross domestic product or GDP is the sum of all goods and services produced within a country’s national borders during a specific time period; everything from desks to diapers can be included.

Since the 1940s, GDP has become a simple assessment tool of economic capacity between countries and over time within the same country. However as Kuznets warned, though the indicator is useful for determining production capacity, it is limited as a metric to evaluate the state of an economy’s inhabitants. GDP as a single aggregated value cannot assess quality of life and it cannot provide insight on the distribution of wealth.

In spite of the statements of Kuznets and other economists of the time and over time, GDP has arguably become the single metric of not only domestic economic progress but also global economic progress. As the indicator of progress it is the targeted metric of economic policy. GDP is tracked and targeted by government and central bank policy makers with the intent to increase its value over consecutive periods.

There are four components to GDP, consumption spending, investment spending –investment on production capacity, government spending and net exports—spending by foreigners for US goods relative to US spending on foreign goods. In the United States the single largest component of GDP, comprising in excess of 65% of GDP, is consumption. As a result, our economy is targeted to consumption, from increasing employment, to low interest rates, to the built-in obsolescence of the goods we purchase.

Given that GDP was established and gained global traction over 70 years ago, our value for consumption has been inherited and modified over a few generations. We have been taught that we have insatiable appetites to consume and have perpetuated the consumption cycle, to maintain the era of consumerism. But this may be the problem.

Over time, through globalization, commercialization and the increasing busyness of life, consumers have become increasingly distanced from the production process of the good they are consuming. Consumers are no longer knowledgeable about the impact that their consumption demand has on the degradation, exploitation and depletion of planetary resources. Instead what consumers are aware of is price.

Fundamentally, consumers have focused on market price and have delegated the inclusion of value parameters including environmental and social costs to producers, but producers are incentivized to minimize cost and maximize return, a seemingly divergent incentive.

In most cases, market prices do not reflect the cost of a good. Lets look at a t-shirt manufactured in a developing country for sale in a developed market. The price of the t-shirt reflects only a portion of its true cost because it neglects social and environmental costs. The price neglects the costs of the exploited wage paid to the textile worker: the social cost resulting from his missing health care and the health and quality of life impact of the non-living wage. Though it does likely include transportation expense, it does not include the carbon footprint or the waste cost related to the landfilling or alternative disposal of the garment. In net, the cost of the consumption is only partially borne by the purchaser; other societies and the environment subsidize the price.

Consider the market price for the air we breath, there is no price, it is free and we need air to live. But, in spite of it being essential for life, it is a costless component of the production process; waste has been released into the air we breathe for years. If there had been a cost for disposal, or even better, a social value that prevented the release of air borne waste, the pollution that has collected in our atmosphere for the past three hundred years would have been significantly less. As simple as it may sound, consumers could have promoted the welfare of the atmosphere through their collective demand that air quality be preserved. How money is spent sends a very strong signal to producers of what will sell.

Both consumer awareness and economy-wide alignment are requisite to promote sustainable economic outcomes. This is, for example, evident in viewing the relationship between economic growth and carbon emissions over the past few hundred years. The energy consumption rates required to promote production and thereby foster consumption have enabled the speed of climate change activity being witnessed today. Atmospheric carbon dioxide is correlated to GDP growth; but so are degradation and exploitation of the environment.

COP21 will offer the needed international platform to evaluate the basis of climate change activity, which arguably is related to how we measure and drive economic growth. The inclusion of sustainable economic development within the Paris Package provides an opportunity for the inclusion of quality of life and ecosystem balance in the defining of economic growth. These elements essentially recognize that how we measure quality of life is fundamental to the economic outcomes we create. From this perspective COP21 could be the catalyst to move beyond GDP to determine a constructed international standard for economic progress. Ultimately, the goals of the UNFCCC to “stabilize greenhouse gas concentrations at a level that would prevent dangerous anthropogenic (human induced) interference with the climate system” may be better aligned with a measure such as gross national happiness, the better life index or a similar parameter. Further, the long term impact of COP21 may be dependent on explicitly promoting such a value shift.

The significance of defined consensus

Posted on October 24, 2015 by madhavi

Given the defined divide in country specific stakeholders concerns, along with the lens of personal circumstances and beliefs, that promotes a heterogeneity of perspective among COP21 participants, the ultimate success in Paris may rely on the establishment of an agreeable definition of consensus.

In the United Nations Framework Convention on Climate Change (UNFCCC) the word “consensus” is used three times, once in Article 7(k) and twice in Article 15. In the first use, consensus is not defined but rather provides the defining boundary for the adoption of “rules of procedure and any financial rules,” as these relate to the establishment of the Conference of Parties. In Article 15 paragraph 3, consensus is referenced as the basis of implementing amendments to the Convention; however, again it is not explicitly defined. Instead, the proportion that constitutes consensus can be inferred as being greater than 75%, based on the parameters provided for action in the absence of noted consensus.

If all efforts at consensus have been exhausted, and no agreement reached, the amendment shall as a last resort be adopted by a three-fourths majority vote of the Parties present and voting at the meeting. The adopted amendment shall be communicated by the secretariat to the Depositary, who shall circulate it to all Parties for their acceptance. (Article 15, paragraph 3)

As noted by Jesse Vogel, specific to the UNFCCC and the Convention, consensus “does not mean complete unanimity. Often it is defined in the negative – the absence of ‘stated objection,’ or of ‘express opposition,’ leaving wiggle room when it comes to defining just what explicit objection looks like. And sometimes, “consensus” can be declared despite the express objection of some.” The lack of clarity of defining what constitutes consensus has been a point of concern for many observers and participants.

La Viña and Guiao comment, “There is, after all, a profound difference between having the agreement of all Parties, and hearing no objections from any of them.” The latter aspect is not necessarily consistent with consensus and in review of prior COP meetings is attributed by some to purposely-deafened ears.

At COP21, the common values of stakeholders will do much to promote a singular foundation for discussion. However, the inclusion, acknowledgement, acceptance, and ultimately overt compromise related to the differences between the national interests represented by meeting participants will be the defining elements of the legacy of the meetings, and the implementation of consensus will play a significant role.