Green investors providing hope carbon plan can succeed here
THE Budget coincided with a stark report by leading climate scientists in which they flagged that our world is warming at a dangerous, alarming and ever-quickening rate.
It’s clear that human-induced climate change is causing increasing chaos, with incidents of major storms, floods, forest fires and droughts becoming the global norm, levelling infrastructure, upending our way of life and leading to major loss of life.
The UN secretary general, António Guterres, called the Intergovernmental Panel on Climate Change (IPCC) findings an “ear-splitting wake-up call”. In Australia, though, national politicians dismissed it as ‘some and pledged to carry on burning fossil fuels. But this attitude of ‘business as usual’ just doesn’t cut it anymore.
If we are to meet global targets, governments need to act far more aggressively, with transformational rather than incremental change required as the benchmark of action.
The IPCC report was released just 24 hours before Budget day in Ireland, a day on which many expected the Government to increase Ireland’s carbon tax. The report said we have just over a decade to get our act together to limit temperature increase to a 1.5C global rise on pre-industrial levels. And if we don’t, we are sleep walking into a difficult future.
Hence the disappointment that no carbon tax increase was announced, especially as the signs had been that there would be an increased tax on the use of fossil fuels, including diesel, peat and petrol.
A hike would have sent a strong signal to the markets that those who back and invest in clean tech and clean energy would be supported as we shift away from fossil fuels. Now it looks like this will not happen until next year at the earliest.
Sometimes the issue of climate change seems paralysed by politics – a feeling that climate change can only be fixed by politicians. That’s wrong.
Business and the capital markets also have a huge role to play, not least in unlocking the capital required to fund the transition, and anyone familiar with the capital markets will know that climate-aligned finance has been a top priority for a long time.
Indeed, next month sees Ireland’s first business-themed climate week taking place with the Climate Innovation Summit at Dublin Castle, attended by 600 decision makers in climate-aligned finance, business and innovation. It’s cause for optimism.
In recent years, serious inroads have been made in Irish business and finance sectors into shifting mindsets and attitudes towards sustainable and responsible investment, edging a once niche activity into the mainstream.
So, while a carbon tax increase would have been welcome, there are also other ways to signal intent. Less than 24 hours after the Budget speech, the Government landed a major win when the National Treasury Management Agency (NTMA) made its debut in the green bond market with a €3bn transaction.
With a normal bond the State is issuing government-backed debt into the markets. With a green bond, the principle is the same, but all proceeds are used to fund ‘green’ or decarbonisation projects under a third-party-validated framework.
For Ireland’s green bond, a list of eligible project categories that the money must be spent on includes sustainable water and wastewater management, clean transport, environmentally sustainable management of living natural resources and land use, energy efficiency and climate-change adaptation.
Listed on the Irish Stock Exchange and with a coupon of 1.35pc, the bond matures in 2031. After France, Poland and Belgium, Ireland is only the fourth EU country to issue such a bond.
Since the middle of September, NTMA officials have been on the road gauging market interest in the bond. Attracting total orders of €11.3bn highlights that this exercise was a success. It also suggests that when international investors were presented with the Government’s decarbonisation plans under the National Development Plan (NDP) 2018-27, the narrative was strong enough for serious investors to buy into. And this by any measure is an excellent result.
But it’s just the start of a process. With €50bn in public and private sector investment required to meet Ireland’s national decarbonisation efforts to 2030, the success of last week’s green bond issuance should give confidence to the Government to kick on with fully funding the NDP 2018-27 decarbonisation plans.
With policy and regulatory certainty, substantial private capital can be unlocked alongside public funds.
The challenge ahead cannot be underestimated, including working to increase Ireland’s carbon tax to a level that will genuinely support change. But this first green bond, and the importance of private sector capital in realising this ambition, is to be welcomed.
It establishes a clear roadmap for investors, both domestic and interreport’
national, to react to in support of Ireland’s national decarbonisation efforts. Such a national effort also underpins Ireland’s emergence as a green finance hub.
Ireland was among the first countries to make attracting green finance a strategic priority, with Government and policy backing since 2012. Today, we have over €30bn of green finance activity already in Ireland and a thriving cluster of activity covering asset management, domiciling and the listing of green bonds.
Aware of the need to de-risk their operations and take advantage of new opportunities, Irish business has been instrumental in shifting capital markets towards large-scale, low-carbon spending and investment. Backed by actions such as the NTMA’s green bond, the trick now is to build the momentum and accelerate the levels of progress.