On the agenda: promoting sustainable capital flows to emerging economies, the future of global carbon markets, and the best ways to turn rhetoric into action. Below is an edited version that captures the highlights of their discussion.
Tim Adams: Over the past few years, we’ve seen an enormous increase in climate commitments. The United Nations Climate Change Conference, COP26, in Glasgow last year brought together a large number of financial executives and other business leaders to focus on getting to net zero.
Now we’re just a few months away from COP27, the UN Climate Change Conference in Sharm El-Sheikh in November. How are we going to close the financing gap between developed and developing countries? And how do we translate all the commitments into substantial action?
Bill Winters: I believe that the opportunity is in harnessing the power of markets. We’ve been debating and partially acting on these issues for 30 or 40 years. And let’s be honest, not enough of that talk has translated into impact.
Still, there’s a palpable sense of momentum building right now. I think the difference is that markets are recognising that this is a problem that we must tackle head-on. They are also recognising the immense potential for investment – and for risk-adjusted returns – in climate change and adaptation at levels we haven’t previously experienced. I believe very firmly that markets can play a major role in solving this problem.
We can get there even faster if we have the public-private partnerships that bring together substantial volumes of capital from private investors who are keen to help fight this fight, but are still building the risk assessment and analysis capabilities, and have a different risk appetite.
The public sector, governments, multilateral development banks, export-credit agencies, regional development banks, while they all have a very different risk appetite, they have an equally strong commitment to getting this done.
And while we’re all focusing on how we can step up our own capabilities and resources, we can leverage that many times through public-private blended finance.
We need to get approximately USD3.5 trillion per year into climate solutions. With blended finance, you can leverage both private and public funding, and really crack the nut of this problem.
Tim Adams: Could you give some examples of what Standard Chartered is doing in terms of blended finance?
Bill Winters: Standard Chartered is one of the largest issuers of Multilateral Investment Guarantee Agency [MIGA] guarantees and has been for years. Though the World Bank’s capability is shifting to sustainable finance, I will argue in this public setting, it is not happening fast enough and not with enough volume. And I will argue further, the leveraging impact from the multilateral development banks is inadequate.
More needs to be done by other partners to get the most leveraging impact. Right now, for each dollar of multilateral development bank financing, we’re getting about an incremental 95 cents of private-sector capital being crowded in. This is wrong by orders of magnitude.
A good aspiration would be to think about how the public sector broadly could commit maybe 15 times the amount that’s being committed today.
And at the same time, we should aspire to a leveraging or crowding-in factor 15 times rather than 0.95, and obviously 15 times 15 becomes a meaningful number, combined with the amount of private-sector capital that would be crowded in.
So we require a set of capabilities and also a fundamental shift in risk appetite, both in the public sector and the private sector.
Beyond our own work, I co-chair the B20 Taskforce for Finance and Infrastructure under Indonesia's presidency of the G20. This year, the taskforce will help us ensure that views on blended finance and carbon markets are reflected in the business community’s recommendations to the G20.
Tim Adams: We’re going to need changes in regulatory relief if we want to crowd capital into emerging markets, which are facing real stress. And not only stress in terms of capital outflows, because of rising interest rates in advanced economies, but we’re seeing real stress in terms of food and energy prices and costs, which continue to create pressures in many of these economies. So we need to crowd in capital for climate resilience.
Let’s turn to one of your crown jewels: efforts to revamp voluntary carbon markets. How did you come up with your vision to revamp voluntary carbon markets and how do you assess where we are now?
Bill Winters: Voluntary carbon markets allow for the transfer of what should eventually be tens and then hundreds of billions of dollars of capital, from the hands of all of us that are making net-zero commitments but can’t get all the way to zero ourselves.
It provides a mechanism to transfer value into the hands of people that really can get the carbon out of the environment, or prevent it from going in in the first place.
Markets like these have been around for decades, but they petered out because there was low confidence that the money was being used in a consistently good way.
So we are creating a set of high standards for voluntary carbon markets and putting a robust governance framework in place so that those high standards could be maintained through time as technology changes and as the understanding of the different tools in the market changes.
If we harness the power of markets, we can achieve the scale we need. We created a framework and now we have an expert panel to form the Integrity Council for the Voluntary Carbon Market that has produced a consultation document.
This is happening alongside a separate but related process, which is the Voluntary Carbon Markets Integrity Initiative, which is separate from the Integrity Council. That’s addressing a different question: what does it mean to be net zero?
As these two pieces of work conclude, between getting it right on what is meant to make a corporate plan and getting comfortable with these high standards, we can really step up the transfer of money into the hands of people that can get the carbon out of the environment.
Tim Adams: What do you say to those who say offsetting emissions using carbon markets is a free pass for the corporate sector?
Bill Winters: There’s no free pass if the quality standards are set at the right level. It’s real money – we’re talking about putting a mechanism in place to transfer hundreds of billions of dollars into the hands of people that are actually reducing carbon, verified by the Integrity Council standards.
We also know that voluntary carbon markets really should only be used after companies have done all that they can to reduce their emissions themselves.
At Standard Chartered, we engage with our clients extremely actively, helping them understand what they can do with their own operations. For example, how do you improve the manufacturing processes, the power generation, the transportation processes, to reduce your emissions outright?
Once you’ve done that, there will be remaining emissions that either are just impossible or very difficult to get to zero in the right timeframe, and the carbon offset market can be used to mitigate those hard-to-abate emissions, but also to reduce or offset the emissions that are being generated along the way.
And that’s something that the Voluntary Carbon Markets Integrity Initiative is addressing directly: what do we consider to be the gold standard or the silver standard, or the bronze standard, for offsetting emissions on the way to net zero, so those emissions are still going away while we’re reducing through our own operations?
Tim Adams: Can you talk about some of the market developments you’re seeing, and the technological innovations?
Bill Winters: Investing in technology – either existing proven technologies like direct air capture or carbon capture, storage and sequestration, or green hydrogen – these are technologies that work, but they’re currently very uneconomic. With the appropriate scaling, they can become economic.
Finding ways to integrate the framework for the carbon offset market with a voluntary carbon market to promote and scale these investments is one area of unfinished business where we can deploy a lot of our thinking.
On a recent visit to India, I met with some big investors in the green hydrogen space who are investing with a view to scaling hydrogen and making it a credible alternative to burning natural gas.
It’s in all of our interests to make sure that we’re financing these things. And to put the structures in place to deliver subsidies in the most effective way.
We’ve also partnered with DBS Bank, the Singapore Exchange and Temasek to develop a carbon exchange and marketplace, Climate Impact X, that provides high-quality carbon credits that can help address hard-to-abate emissions with price transparency. It uses technologies like satellite monitoring, machine learning and blockchain to enhance the quality of carbon credits.
All this will help carbon markets mature and scale in a safe and sound way, and ultimately put more money into the hands of those people that are effecting change.
Tim Adams: Bill, I could spend all day with you on this topic. Unfortunately, we have to wrap it up, but I will say this: we are in the midst of a transformative time and we’re going to look back on this in years to come and we’re going to say we were really at a pivotal moment. And it is pivotal and transformative because of people like you and your leadership and your vision that are making a difference. So thank you for joining us here today.
Industries in Transition
With topics around urban transformation, energy transition, the future of transport and critical infrastructure across Asia, Africa and the Middle East, this content series will unearth fresh trends and showcase how we are supporting clients in the transition towards a more sustainable and inclusive future.