The top 5 policy and finance stories in 2015

From a historic universal climate agreement to unprecedented financial support for green projects, there has been a sea change in policy and finance in 2015.

This year will go down in history as the “turning point” in the fight against climate change, as 196 countries brokered a deal to cut greenhouse gases and the private sector turned up in force to pledge their funds and efforts to support the global shift to low-carbon growth. 

Here’s our pick of the top policy and finance stories for the year:

1. The Paris Agreement triggers green policy and finance 

This shift would require governments of both poor and rich nations to implement sustainable development policies such as adopting more renewable power, replacing conventional vehicles with electric ones, constructing green buildings, conserving forests, using energy efficient technologies and developing new solutions, among others. 

More money than ever before would have to be mobilised for such projects. In 2014, about US$391 billion was mobilised in both private sector and public funds for climate change projects, according to Climate Policy Initiative. This year, green bond issuance could hit US$70 billion, says Climate Bonds Initiative.

Besides the US$100 billion a year already promised by rich nations in 2009 to help developing countries finance their climate mitigation plans, the private sector has announced a slew of initiatives to invest in renewable energy.

Annual investment in renewables is currently at US$280 billion, and the figure needs to jump to about US$500 billion by 2020, according to International Renewable Energy Agency. In November, Maltese Prime Minister Joseph Muscat unveiled a new US$1 billion Commonwealth Green Finance Facility to support environmental projects within the 53-nation bloc. The Asian Development Bank said in September that it would double to US$6 billion a year by 2020 its financing of projects to help Asia-Pacific countries mitigate the impact of climate change.

2. Addis Ababa Action Agenda for SDGs

In July, UN members agreed to overhaul global finance practices and generate investments to tackle a range of economic, social and environmental challenges at the UN Third International Conference on Financing for Development, held in Addis Ababa, Ethiopia.

This groundbreaking agreement, known as the Addis Ababa Action Agenda, provided a foundation for implementing the 17 Sustainable Development Goals (SDGs) that world leaders adopted in New York in September and for the Paris Agreement. 

In support of implementation of these goals, the Addis Ababa Action Agenda contained more than 100 measures, addressing all sources of finance - the lynchpin in the success of the SDGs - and covering cooperation in issues such as technology, science, innovation, trade and capacity building.

While no sum was agreed for the Action Agenda, the agreement included clauses to help improve municipal authorities build up their finances and a call to review the role of existing multilateral development banks such as the World Bank and the ADB. 

3. Fossil fuels divestment gains momentum

With Norway’s US$900 billion sovereign wealth fund - the world’s biggest - saying in June that it would sell off its coal assets worth US$8 billion, the movement to divest fossil fuel assets has reached a tipping point. More than 500 organisations - from companies to funds to private investors - have agreed to sell their fossil fuel assets over the next few years, signalling the beginning of the end of the fossil fuels era. 

Meanwhile, the Portfolio Decarbonization Coalition (PDC), which was set up in November 2014 by a group of investors to rid their portfolios of high carbon investments, announced in Paris that two of the world’s largest institutional investors, Allianz and ABP, had also joined the coalition. The PDC now convenes 25 investors overseeing the decarbonization of US$600 billion in assets under management, far surpassing the group’s original goal of US$100 billion.

Sustainability consultancy Corporate Knights also found that staying invested in fossil fuels can hurt investors. It analysed the investments of 14 funds totaling US$1 trillion in assets, including the Gates Foundation and ABP, and determined that coal-intensive investments cost them US$22 billion in reduced returns from 2012 to 2015. 

4. Southeast Asia’s climate change losses underestimated

Economic losses from the impact of climate change in Southeast Asia could be 60 per cent higher than previously estimated, reducing the region’s gross domestic product by up to 11 per cent by 2100, according to a ADB study in early December. In a previous report issued in 2009, ADB said that the region could expect a 7 per cent annual reduction in economic output due to climate change, making mitigation measures more urgent than ever. 

The report focused on the region’s five largest economies: Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, which accounted for 90 per cent of the region’s emissions. It said the region must step up efforts on energy efficiency, with technologies that improve and reduce power use.

5. Responsible investing hits new high

Everywhere around the world, responsible or ethical investing - the practice of incorporating environmental, social and governance (ESG) factors into the decision-making process - has been on the rise. In Australia, responsible investments accounted for a whopping A$629.5 billion - or half of all assets under management in the country at the end of 2014, says Responsible Investment Association Australasia. 

And while Asia still lags Europe and the United States in sustainable investing, the market for funds employing such strategies is expanding rapidly in the region, with Singapore and Indonesia leading the growth.

Asia’s sustainable investment assets stood at US$53 billion at the beginning of 2014, a jump of 32 per cent from the US$40 billion at the start of 2012. That’s 0.2 per cent of the global total, according to Global Sustainable Investment Alliance, a group of sustainable investment organizations that include the European Sustainable Investment Forum (Eurosif) and Association for Sustainable & Responsible Investment in Asia (ASrIA).

In another sign that responsible investing was becoming mainstream in Asia, the Association of Banks in Singapore said in October they would for the first time adopt standards that govern responsible financing and integrate ESG issues such as deforestation, human rights and corporate ethics into their lending and business practices.

This groundbreaking move came in the wake of the worst haze to blanket Southeast Asia in years, with air pollution indicators hitting record levels and forcing schools to shut, flights to be cancelled and even causing several deaths in parts of the region. The disaster also prompted calls among Singaporeans for financial institutions to behave more responsibly, especially those linked to forest-related companies operating in Indonesia. 

This story is part of our Year in Review series, which looks at the top stories that shaped the business and sustainability scene in each of our 11 categories.

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