3rd Annual OECD Green Investment Financing Forum (GIFF)

In association with the Asian Development Bank Institute (ADBI)

October 13-14 2016

Tokyo

Rintaro TamakiDeputy Secretary GeneralOrganisation for Economic Co-operation and Development

DISCLAIMER: This presentation is solely for the use of the intended audience. No part of it may be circulated, quoted or reproduced without prior written approval from the OECD. This presentation represents the views of the author alone and unless specifically stated, does not represent opinions, estimates or forecasts of the OECD or its member countries. This material was used during an oral presentation; it is not a complete record of the discussion.

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Regional cost of selected climate impacts

Uncertainty ranges in 2060 dueto uncertainty in ECS

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0%

2010 2020 2030 2040 2050 2060

-South & South East Asia

OECD Pacific

Rest of Europe & Asia

OECD Europe

Latin America

OECD America

World

-Sub Saharan Africa

Middle East & North Africa

Source: OECD ENV-Linkages calculations in OECD (2015) Costs of Inaction on Environmental Challenges: Insights from a NAEC project

Breaking the tragedy of the horizon: 3 climate-related financial sector risks

Physical risks: • Impacts on insurance liabilities and

value of assets that arise from climate- and weather-related events

Liability risks: • Impacts that could arise if parties who

have suffered loss/damage from effects of climate change seek compensation from those held responsible

Source: Carney, M (2015), Bank of England: http://www.bankofengland.co.uk/publications/Pages/speeches/2015/844.aspx

Transition risks: • Financial risks which could result from

process of adjustment towards a lower-carbon economy.

• Changes in policy, technology and physical risks could prompt value reassessment of range of assets as costs and opportunities become apparent.

• The abruptness with which such re-pricing occurs could influence financial stability.

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Rethinking the governance of institutional investments

OECD is undertaking a review of governance standards around investment decisions

• Institutional investors’ duties towards their beneficiaries

• What these mean for the integration of ESG factors • How institutional investors manage (financial) risks

and opportunities linked to green investments / climate change

– Linkage with corporate carbon disclosure • Identify effective approaches regarding investment

governance and green finance

OECD analysis will seek to rethink governance and assess how “green” risks and opportunities can be incorporated more systematically into investment decisions.

Too few institutional investors include the financial impacts of environmental factors in their investment process• Short-term focus• Difficulty balancing

conflicting interests of beneficiaries

• Lack of standardised models and analytical tools

• Limited expertise and resources

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1% of large OECD pension fund assets invested directly in infrastructure

LARGE OECD PENSION FUND

ASSETS

USD 10 trillion

Source: OECD Global Pension Statistics, Global Insurance Statistics and Institutional Investors databases,and OECD staff estimates. (1) Public Pension Reserve Funds, (2) Other forms of institutional savings* Direct unlisted equity investment by large OECD pension funds, covering $10+tn* * BNEF estimates

<1%

INFRASTRUCTURE INVESTMENT

(direct)

* <3%.

**

GREEN INFRASTRUCTURE

INVESTMENT (direct)

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Source: OECD, 2015: http://dx.doi.org/10.1787/9789264224582-en

Ensure a stable “investment grade” policy environment - evaluate and fix unintended regulatory impacts

Address market failures (incl. lack of carbon pricing & remove fossil fuel subsidies)

Provide a national infrastructure road map & pipeline

Facilitate the development of liquid financing instruments (e.g. green bonds) and risk mitigants

Promote market transparency, disclosure, standardisation and improve data availability

Reduce the transaction costs of green investment

Establish a “green investment bank” or refocus existing public financial institutions

OECD policy recommendations for G20 and Climate Finance Ministers: Overcoming barriers and greening institutional investors

Establish pre-conditions for institutional investmentBarriers to institutional investment• Weak, uncertain or

counterproductive environmental, energy and climate policies

• Regulatory policies with unintended consequences

• Lack of suitable financial vehicles with attributes sought by institutional investors

• Shortage of information. knowledge and data to assess portfolios and investments and underlying risks/returns

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OECD Progress Report on Approaches to Mobilising Institutional Investment for Green Infrastructure (Sept. 2016)G20 Green Finance Study Group (GFSG)

33

MDBs: > 33%

GIBs: 25%

National-level PFIs: > 25%

Equity investment: 50%

Investment at construction: most

involving

6Source: OECD (2016) Progress Report on Approaches to Mobilising Institutional Investment for Green Infrastructure

Composition of the green bond market (as of August 2016, USD Bn, gross issuance)

*Note: SSA: Sovereign, Supranational and Agency / ABS: Asset Backed Securities / Other Corporate includes Consumer, Industrials, Technology sectors, 2016 as of AugustSource: OECD (2016 forthcoming) based on Bloomberg and Climate Bonds Initiative data

77

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Potential for low-carbon bond issuance to 2035 in a 2 degree scenario:In China, Japan, EU and US (in the renewable energy, low-emission vehicle and energy efficiency in buildings sectors)

1003005007009001,1001,3001,5001,7001,900

-500

500

1,500

2,500

3,500

4,500

5,50020

1520

1620

1720

1820

1920

2020

2120

2220

2320

2420

2520

2620

2720

2820

2920

3020

3120

3220

3320

3420

35

Ann

ual b

ond

issu

ance

in fo

ur

regi

ons

($bn

)

bond

s ou

tsta

ndin

g in

four

regi

ons

($bn

)

Amount outstanding Issuance

Source: OECD (2016) A Quantitative Framework for Analysing Potential Bond Contributions in a Low-Carbon Transition

OECD Centre on Green Finance and Investment

MISSION

HOW?

WHEN?

Promote policies, institutions and instruments to mobilise GF&I

• A global platform for knowledge exchange

• Analysis leveraging expertise of OECD and stakeholders

• Collaboration to address knowledge gaps, market challenges

• Launched today Green Investment Financing Forum (13 Oct)

• Build out the Centre over 2017-18

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