Finding the Money: The Wizardry of Financing Climate Responses

Even if you aren't particularly interested in climate change, Copenhagen's high level negotiations are interesting because they bring to light things about the world that usually pass unnoticed. That's particularly true when it comes to finance.

This morning, financial wizard George Soros announced a climate financing plan that to most of us was akin to lifting up the cushions of the couch and finding a billion dollars.

Soros' plan relies on a form of financing called special drawing rights (SDRs) that, I think it's safe to say, most people still don't know exists. SDRs are in a sense a virtual pool of capital that can be exchanged for the currency of any IMF member state. They have been around since 1969, when they were created by the IMF to add liquidity to international currency exchanges. Most recently they were used to inject $283 billion into the world economy following financial crisis.

Soros' plan (summed up over at is to place $100 billion worth of these SDRs in a "green fund" that would be invested " in the most vulnerable developing countries to protect rain forests, plant new forests, expand farming methods that store carbon, and help with adaptation and energy programs." It sound like a brilliant way to kick-start the proposed (but still unfunded) $10 billion annual climate adaptation fund.

Another overlooked pool of capital is the equity controlled by the world's insurance and reinsurance companies. Anxious to limit their potential liabilities, insurers and reinsurers have long been some of the most eloquent quantifiers of the need to respond to climate change.

Munich RE, the world's largest reinsurerfor example, has been charting the increased incidence in natural disaster related losses since the 1970s. As Matt Huddleston, Principal Climate Change Consultant at the UK's Met Office points out in an excellent feature on the BBC (text & video), they have a real business interest in pushing for ambitous emissions reductions: "

"They're terrified that they might have a year where they have a lot of damage from winter windstorms in Europe, a lot of land-falling hurricanes in America and hail damage in the Midwest - all in the same year."

The idea of getting caught holding the bag for those kinds of losses has pushed Munich RE to begin investing in a variety of renewable energy projects, including the ambitious DESERTEC solar aray in North Africa. Nikolaus von Bomhard, CEO of MunichRE, says that from a strictly business point of view it makes sense for insurers to invest 1%-2% of their equity into mitigation measures. For his firm that amounts to $2billion, but of the several trillion dollars managed by the insurance sector globally it would add up to tens of billions of dollars a year.

Now if only New York had found a similarly creative financial partner for their building retrofit program.

[The BBC feature is well worth the watch, if only for a glimpse of the trippy Alice-In-Wonderland inspired series of tunnels that link Munich RE's various buildings.]


2 Responses to "Finding the Money: The Wizardry of Financing Climate Responses"

Alex Aylett said... 11 December 2009 at 09:13

And this morning, more news on the financial front with the call for a financial transaction tax coming out of the EU.
"A tax on banking could be used to pay for combating climate change under plans pushed by Gordon Brown and Nicolas Sarkozy today as Britain almost doubled the cash it put up for short-term funding to help developing countries to go green.

In a joint statement, they declared: "To ensure predictable and additional finance in the medium term to 2020 and beyond, we should make use of innovative financing mechanisms, such as the use of revenues from a global financial transactions tax and the reduction of aviation and maritime emissions and the auctioning of national emissions permits. We will work together on this."


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This is a blog for news and views on the future of sustainable cites. A major revamp is in the works. Until then I am keeping this version up as an archive of my past writing.

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