The Paris Agreement. a legally binding international treaty on climate change signed by 196 nations in 2015 was one of the first major drives to limit the rise in temperatures due to global warming to under two degrees. The goal was to reduce greenhouse gas emissions to drop the temperature.
With the world, and especially Caribbean islands, already feeling the effects of climate change and covid19 accelerating the demand for cleaner energy, more and more industries are seeking to transition from fossil fuels to cleaner energy.
But the road has been difficult. Despite the agreement global emissions increased worldwide by 1.7 per cent in 2018, and even higher in 2019.
Trinidad and Tobago emits about 40 million tons of carbon each year and as far as transition readiness is concerned the World Economic Forum ranks us at 85th.
Still, nations and organisations both public and private continue to develop plans to achieve the goal of reducing carbon emissions through changing the energy mix, increasing the production of clean energy and developing a culture which would identify the importance of conserving energy.
There was a lot of conversation this week about energy transition at the Energy Conference hosted by the Energy Chamber. The Prime Minister announced government’s intention to look into hydrogen energy. The Ministry of Energy and Energy Industries, under Minister Stuart Young, highlighted the many areas government has focused on to make the production of fossil fuels in the country more efficient, and to further exploit the natural gas value chain, as it is considered the ideal fuel for transition.
But one question was looked at by First Citizens Bank Group CEO Karen Darbasie. While several plans were made to industrialise clean energy, how was the country going to pay for it?
On Tuesday, the second day of the three-day energy conference, Darbasie said the region would need about USD$11 million if it were to acquire the parts needed to establish sustainable energy production which could, at least in part, power the nation.
Darbasie called on all financial institutions, to pool resources to invest in sustainable energy projects.
“I think of the financing aspect as an integral part of what I would term the bridge in moving from policy and conceptualisation of projects to the actual execution of project” Darbasie said. “Our banks want to play a role in this process.”
But to play that role, financial institutions need to understand what projects would need to be supported and they must establish what exactly the financing needs are, to transition to clean energy.
In a nutshell, sustainable finance is any form of financial product or service that would promote a positive environmental or social service while contributing to the Paris Agreement goals.
One of the 25 largest banks in the world, Deutsche Bank, defined six guiding principles in economic activities which would define them as environmentally or socially sustainable. These include balancing economic success with environmental and social responsibility; identifying and addressing the environmental and social impacts of business activities; fostering businesses that addresses and enables sustainable growth; following internationally recognised principles and standards, ensuring that policies are grounded in good governance and processes and encouraging transparent communication and dialogue with stakeholders.
The bank sought to invest in the manufacture of low carbon components, equipment and machinery for renewable energy technologies, the generation of electricity from renewable sources, whether through wind, solar, ocean, hydropower or geothermal energy, and many other areas in the energy, transport, manufacturing and even real estate industries.
Darbasie in a panel discussion at the energy conference said financing would be needed from all stakeholders especially in a post-covid environment where several economies are struggling with a rising debt to GDP ratio.
“We really have the need for public and private financing to ensure financing flows are consistent. And I would add there is a need to harness international sources of financing as well as regional and domestic sources.”
“We have heard discussions around ESG financing (environmental, social and government financing). There are climate funds, green bonds and multilateral sources which focus on reducing the carbon footprint,” Darbasie added.
She added that development banks also have an opportunity to be one of the key financiers in the region’s transition process.
Financial institutions are already looking at sustainable financing. In the Prime Minister’s address he pointed out that the Ministry of Energy and the Planning Ministry secured funding for feasibility studies relating to hydrogen power through the IDB. First Citizens is also discussing its own funding needs to facilitate investing in sustainable development.
“It is key for us as financiers in the banking sector and all of the pools of financing for to understand and approach energy transition.”
“We need to engage all the pools of funding to engage in the agenda that we all want to progress,” Darbasie said.
First Citizens is not the only bank looking into investing in renewable and clean energy. In a release sent to the media, Republic Bank announced it will be investing USD$200 million in transition support by 2025.
“These goals will be achieved by activities which include the lending and investment for loans that enable the sale of electric and hybrid cars, loans that are aligned to the promotion of clean fuels, renewable energy and technology, that contribute to an improvement in energy efficiency and construction loans that deploy climate resilient technology.”
As a signatory to the United Nations Principles of Responsible Banking initiative which jointly deliver tools, methodologies and practical guidance to over 230 banks, Republic already announced that capital would be directed to protection of the environment and supporting renewable energy.
Republic bank group CEO and president Nigel Baptiste said since signing the Principles of Responsible Banking the bank has been working behind the scenes to implement several initiatives aimed at supporting the Sustainable Development Goals.
“Given the negative impact of climate change on the Caribbean and our dependence on fossil fuels, we have identified Sustainable Development Goal seven, affordable and clean energy, and Sustainable Development Goal 13, climate action, as priority goals for Republic Group.
“We believe that though our climate finance lending and investment packages, we will be on a path to a cleaner, greener and more sustainable future,”