3 Ways Your Money Can Fight Climate Change | Veronica Chau | TED

Summary

The speaker emphasizes the urgent need for four trillion dollars annually by 2030 to combat the climate crisis. Despite financial institutions committing to net-zero by 2050, challenges remain in deploying funds effectively. The speaker highlights the intertwined issues of housing affordability and climate change, suggesting that addressing one can benefit the other. Solutions include government policies, institutional investor mandates, and consumer demand for greener housing solutions to unlock trillions for climate action.

Takeaways

• 💰 **Urgent Financial Need**: At least four trillion dollars per year by 2030 is required to prevent a climate crisis.
• 🌱 **Green Economy Opportunities**: Banks and investors recognize the risks of climate change and are eager to finance the green economy.
• 🌐 **Global Commitment**: Over 450 financial institutions, managing over 130 trillion dollars, have pledged to align their financing with net-zero emissions by 2050.
• 🏠 **Housing and Climate Connection**: The challenges of housing affordability and climate change are linked, and solving one can help solve the other.
• 💔 **Affordability Crisis**: There's a significant scarcity of affordable homes, especially for those living below the poverty line.
• 🔥 **Energy Inefficiency**: Older, less energy-efficient homes are prevalent in marginalized communities, leading to higher utility costs.
• 🌿 **Sustainable Finance**: The speaker emphasizes the role of sustainable finance and investing in transforming challenges into financing opportunities.
• 💡 **Financing Opportunities**: Banks see potential in financing over a trillion dollars' worth of projects to reduce housing emissions.
• 🚧 **Risk Thresholds**: Banks require certain risk thresholds to be met, which early-stage green technology companies and affordable housing projects might not meet.
• 🌍 **Public Policies Needed**: The right public policies, programs, and permits are needed to mobilize the necessary capital for climate action.
• 🗳️ **Civic Engagement**: Voters and constituents can influence government actions by demanding policies that support climate finance.

Q & A

How much money is needed per year by 2030 to avert a climate crisis according to the speaker?

At least four trillion dollars per year is needed by 2030 to avert a climate crisis.

What is the current issue with the flow of money to combat climate change?

The money isn't flowing at the rate needed to keep the planet habitable.

How many financial institutions have committed to aligning their financing to net-zero by 2050?

Over 450 financial institutions have committed to aligning their financing to net-zero by 2050.

What is the collective amount of money managed by these financial institutions?

These financial institutions collectively manage over 130 trillion dollars.

What is the main challenge in deploying money into technologies that can decarbonize the world?

It's proving to be really hard to deploy real money into real technologies that will actually decarbonize the world.

What is the affordability challenge faced with housing in the United States?

There's a scarcity of over seven million homes that people living at or below the poverty line can afford to rent.

How does the energy-inefficient housing affect the affordability of living in homes?

Older, less energy-efficient homes are less affordable due to high utility bills, and they tend to be in Black and Brown neighborhoods.

What is the climate challenge associated with building more affordable housing?

Buildings are one of the leading contributors to greenhouse gasses, and a business-as-usual approach to building housing could exacerbate climate change.

What is the role of sustainable finance and investing in addressing the housing and climate challenges?

Sustainable finance and investing can transform these challenges into financing opportunities, such as deploying debt, equity, grants by governments, investors, and banks.

What is the catch when it comes to banks financing the most needed things like replacements for high-carbon cement?

Banks work within prescribed risk thresholds, and early-stage companies developing replacements for high-carbon cement might not fit within those risk thresholds.

What are the three Ps that the speaker suggests governments should provide to mobilize climate finance?

The three Ps are public policies, programs, and permits.

What is the role of institutional investors like pension plans and insurance companies in climate finance?

Institutional investors manage large balance sheets and are increasingly recognizing the long-term risks associated with climate change and social inequities, leading them to take action.

How can individuals create demand for greener solutions in housing?

Individuals can create demand by asking about energy efficiency and carbon footprints when buying or renting homes, similar to how they have shown demand for alternatives to meat or electric vehicles.

Outlines

00:00

🌿 Climate Finance: The Urgency and Potential

The speaker emphasizes the urgent need for at least four trillion dollars annually by 2030 to prevent a climate crisis. Despite financial institutions acknowledging the climate risks and opportunities for a green economy, the actual deployment of funds into real-world technologies is challenging. Over 450 financial institutions have pledged to align their financing with net-zero emissions by 2050, managing a collective 130 trillion dollars. However, the speaker highlights that these commitments are hard to fulfill due to risk thresholds and return expectations, suggesting that public policy, capital, and demand are necessary to unlock these funds.

05:00

🏛️ Government's Role in Climate-Housing Finance

The speaker discusses the role of governments in facilitating climate finance, particularly in the housing sector. They introduce the concept of blended or catalytic finance, where governments use their funds to take on more risk, allowing private sector finance to flow into areas like affordable housing. The speaker also outlines the 'three P's' needed from governments: public policies, programs, and permits. They share a story of a bank facing challenges due to the absence of these elements, emphasizing the need for voters to demand these changes from their governments to unlock the potential of climate finance in housing.

10:00

💼 Mobilizing Institutional Investors and Public Demand

The speaker focuses on the role of institutional investors, such as pension plans and insurance companies, in managing long-term funds and the increasing recognition of climate and social risks. They discuss how these investors are beginning to act on these risks, financing social bonds that address inequities like affordable housing. The speaker suggests that individuals can influence these investors by choosing investment options that consider environmental and social factors or by demanding such options. Lastly, they encourage creating demand for greener housing solutions, such as energy-efficient homes, to show investors the value in financing these alternatives.

Keywords

💡Climate Crisis

A climate crisis refers to a situation characterized by severe and long-lasting changes in the Earth's climate, leading to detrimental effects on ecosystems, weather patterns, and human societies. In the video, the climate crisis is highlighted as a critical issue that requires urgent financial investment to mitigate its impacts and keep the planet habitable.

💡Net-Zero

Net-zero refers to a state where the amount of greenhouse gases emitted into the atmosphere is balanced by an equivalent amount being removed, thus having a net-zero impact on the climate. The video discusses how over 450 financial institutions have committed to aligning their financing with net-zero goals by 2050, underscoring the importance of this concept in combating climate change.

💡Green Economy

The green economy is an economic system that aims to reduce environmental risks and ecological scarcities while also aiming to enhance the natural wealth of the Earth. The speaker mentions the green economy to emphasize the opportunities for financing sustainable and environmentally friendly economic practices.

💡Affordability Challenge

An affordability challenge refers to the difficulty faced by individuals or communities to access or pay for essential goods and services, such as housing. The video script discusses the affordability challenge in housing, pointing out the scarcity of affordable homes and the high cost of living in energy-inefficient homes.

💡Energy-Inefficient

Energy-inefficient describes buildings or systems that consume more energy than necessary for their operation. In the context of the video, older homes are described as energy-inefficient, leading to higher utility bills for residents, particularly in Black and Brown neighborhoods.

💡Blended Finance

Blended finance is a development finance instrument that combines public and private capital to mobilize more funding for sustainable development projects. The video mentions blended finance as a tool that governments can use to leverage private sector investments in climate-friendly initiatives like affordable housing.

💡Public Policies

Public policies are the laws, regulations, and guidelines established by governments to achieve specific goals and address societal issues. The video emphasizes the need for public policies that support climate finance, such as minimum energy-efficiency standards and incentives for homeowners to adopt renewable energy solutions.

💡Institutional Investors

Institutional investors are organizations such as pension funds, insurance companies, and mutual funds that manage large sums of money on behalf of others. The video discusses how these investors are increasingly recognizing the importance of integrating environmental and social considerations into their investment strategies.

💡Social Bonds

Social bonds are a type of bond where the proceeds are used to finance projects that address social issues, such as affordable housing or healthcare. The video mentions the increase in social bond financing as an example of how investors are taking action to address social inequities.

💡Demand

In the context of the video, demand refers to the consumer interest or desire for specific products or services, such as energy-efficient or low-carbon homes. The speaker argues that creating demand for greener housing solutions can encourage banks and investors to finance more sustainable housing projects.

Highlights

We need at least four trillion dollars per year by 2030 to avert a climate crisis.

Over 450 financial institutions have committed to aligning their financing to net-zero by 2050.

These financial institutions collectively manage over 130 trillion dollars.

The challenge is deploying real money into real technologies that will decarbonize the world.

Housing affordability and climate challenges are inextricably linked.

There's a scarcity of over seven million affordable homes in the United States.

Older, less energy-efficient homes are often in Black and Brown neighborhoods.

The average Black renter pays over 250 dollars more per year in utility bills than a white renter.

Buildings are one of the leading contributors to greenhouse gasses.

Financing opportunities in the housing sector are enormous, with over a trillion dollars' worth of potential.

Banks need the right type of public policies, capital, and demand to put money to work.

Blended or catalytic finance can help mobilize private-sector finance by taking on more risk.

Governments play a huge role in climate finance through public policies, programs, and permits.

Institutional investors are increasingly considering environmental and social considerations in their investments.

Investors financed over 140 billion dollars' worth of social bonds in 2020.

Individuals can create demand for greener solutions by asking about energy efficiency and carbon footprints when buying or renting homes.

Money can influence how long we'll be here to enjoy the planet, but it's not the only factor.

Transcripts

OK, I'll give it to you straight --

we need at least four trillion dollars per year by 2030

to avert a climate crisis.

And right now, that money simply isn't flowing

at the rate we need to keep this planet habitable.

Now I work with a lot of banks and investors,

and everyone who I talk to --

and I work with some of the leading ones around the world --

they get what needs to be done.

They're aware of the climate risks

and they're actually really excited about the unprecedented opportunities

to finance the green economy of the future.

And here's the good news.

Over 450 financial institutions around the world

have committed to aligning their financing to net-zero

by 2050.

And collectively,

these financial institutions manage over 130 trillion dollars.

OK, so we need trillions, we've got trillions.

Problem solved, right?

Shortest TED Talk ever.

(Laughter)

I wish that were the case.

But now, as we're working to deliver on those commitments,

it's actually proving to be really hard.

Like, really hard to deploy real money into real technologies

that will actually really decarbonize the world.

And as a result, too much of that money,

it's sitting on the sidelines, waiting to be put to work.

But I think we can change that.

And it's not even what I think --

I know we can,

because it's based on what banks and investors tell me

about what they need to go fast and go far.

And what they need is help from people like you and me.

So to bring this idea to life,

let's zoom in on one part of the economy, one that we can all relate to --

it's close to home.

Let's talk about housing.

Because, believe it or not, the challenges we're facing with housing

and the challenges we're facing with climate

are inextricably linked,

so as we solve for one, we can solve for the other.

You see, we're facing two concurrent challenges right now, with housing.

On one hand, there's an affordability challenge.

There's just a scarcity of homes that are affordable right now.

Here in the United States,

there's a scarcity of over seven million homes

that people who live at or below the poverty line can afford to rent.

And the other affordability challenge

is it's less affordable than ever before to live in one,

because they're so energy-inefficient.

These older, less energy-efficient homes

tend to be in Black and Brown neighborhoods

due to the structural nature of poverty.

And get this --

a recent study found that the average renter who is Black

pays over 250 dollars more per year in utility bills

than one who is white.

OK, so we need to build a lot more affordable housing.

Great.

But that's when we run into the climate challenge,

because the buildings that we live in

are one of the leading contributors to the greenhouse gasses

that are fueling climate change.

And if we take a business-as-usual approach

to just building all this housing,

we'll only exacerbate the climate challenge.

Think about the emissions

from all that cement and steel and concrete

that goes into a high-rise, for example.

So, a pretty sticky challenge.

But that's why I love working in sustainable finance and investing,

because we get to take challenges like this

and transform them to opportunities,

specifically financing opportunities.

Opportunities to deploy debt, equity, grants by governments,

investors and banks.

And in the housing sector, the financing opportunities are enormous.

We recently did a study.

We found over a trillion dollars' worth of things that banks can finance

to lower the emissions associated with our housing.

OK, great, so what will it take?

How can we actually get this done?

Well, here's the catch.

You see, banks work within prescribed risk thresholds,

and some of the things we need most --

like replacements for that high-carbon cement, steel, concrete --

they're being developed by companies right now

that are still relatively early-stage,

and might not yet fit within those risk thresholds.

Similarly, building affordable homes in a low-income community

or a low-income country

might not reach the return thresholds that investors are looking for.

When I talk to banks and investors,

they say they need the right type of public policies,

they need the right type of capital and they need demand

in order to put this money to work.

So that's where you and I can come in,

because there are some simple moves that you and I can do

that can help to create the conditions that will allow this money to flow.

I'm going to talk you through these different moves,

and as I'm talking, just bear in mind,

these moves are not exclusive to housing.

We could apply this playbook in any sector where we need faster climate action.

OK, let's dive in.

The first thing that we can do to really move these trillions of dollars

is make the climate-housing connection matter to government.

Governments have a huge role to play in climate finance.

But when I talk to banks and investors,

there's one particular form of government funding

that they say would make a huge difference,

and it's called blended or catalytic finance.

You see, the private sector, banks and investors,

they have a lot of capital,

but not necessarily always the right risk appetite.

On the other hand,

governments are willing to take some risks,

especially for things like the climate or shelter equity,

but they don't have as much capital.

So what blended finance involves is governments deploying their finance

in instruments like guarantees,

or more concessional forms of lending,

and this allows that private-sector finance

to flow when the governments take on more of that risk.

And this kind of blended or catalytic finance

has proven to be tremendously effective in areas like affordable housing,

where a little bit of government money can go a long way.

OK, great, so that's how we can get some money flowing,

but there is more that we need from governments,

and I call them the three p's:

public policies, programs, permits.

And to bring this to life,

let me tell you a story of a bank that I'm working with.

They have bold ambitions.

They want to bring all the financing in line with net-zero targets by 2050,

including their financing for homes.

And as we worked to bring this ambition to life,

we ran into three key challenges.

In a lot of the markets where they operate,

the right public policies just weren't in place.

Minimum energy-efficiency standards just didn't exist.

Moreover, the programs to incentivize homeowners

to put solar panels on their roof or retrofit their homes,

the kind of thing that the bank was willing to finance,

they just weren't available at sufficient scale.

And finally, when the bank was looking for big-ticket things to finance,

like entirely new housing developments that were affordable and low-emissions,

they found that projects were held up in permitting.

And so their good intentions remained stalled,

and so did the money.

But that's where people like you and I can come in,

we the voters and constituents,

because we can demand that governments do this.

We can demand that they put in place that financing,

those programs, those permits.

And look, I get it.

Right now, it's a little bit of a complicated time for many countries,

at the national level,

around climate-change policy.

But the exciting thing about housing

is a lot of the changes that we need are superlocal ...

where small numbers of voters can actually make a huge difference.

So let's do this.

Let's put climate and, importantly, actions that drive climate finance,

at the top of the agenda for every local government.

Let's write to our local officials

and say "Look, the banks and investors, they're ready to put money to work.

And if we can just put in place the right policies, programs, permits,

that money can come to our community."

Let's back the candidates that back climate action

and, importantly, let's show up to vote.

OK, that's the first move --

we can mobilize governments.

But if we want to mobilize big money,

we also have to look at the big balance sheets.

So here's the second move.

If you have an insurance policy or a pension, this one's for you.

You see, pension plans, insurance companies,

they're managing huge balance sheets.

They're often referred to as institutional investors.

And these institutional investors,

they're managing your money for the long run.

And the good news is that in recent years,

they have increasingly begun to appreciate

that the long-term risks associated with climate change

present a material risk to their ability to manage your money.

And so they've started taking action to manage those climate risks.

Well, thanks to the pandemic and the recent focus on racial equity,

they're now appreciating that social inequities

also create these long-term financial risks,

and they're ready to step up and take action.

Here's some good news --

in 2020, investors financed over 140 billion dollars' worth of social bonds.

That's up from 17 billion just the year before.

What are social bonds?

They’re bonds [where] proceeds can be used towards addressing social inequities,

including things like affordable housing.

So when I talk to these investors

and ask them, "OK, you're doing billions, that's great,

but what would it take to get to trillions?"

they say it all comes down to having a mandate,

a mandate to better integrate

these environmental or social considerations

into how they manage your money,

the mandate to actually put the money to work.

So how can we give them that mandate?

Well, there's two ways.

One is insurance companies and pension plans

are increasingly giving you options

to move your money from a general pool into a more dedicated one

that manages money with greater environmental

and social considerations in mind.

And if you don't have that option, demand it.

Large pension plans, insurance companies,

they have teams whose job it is to listen to your concerns.

I know, because that was one of my first jobs out of college,

to just answer phones for a large pension plan in Canada.

And the more we speak up and influence these large investors

who are managing our money

and make clear how we want them to consider

environmental and social causes,

the more of a mandate they will have to put those trillions to work.

OK, so first move is governments,

second is the institutional investors.

The third move is ourselves.

We need to create the demand for these greener solutions.

Let me give you a few examples.

You know, most banks, they'll offer a discount for your mortgage

if it meets minimum energy-efficiency standards.

But guess what?

Few people take them up on that offer.

Similarly, I worked for a large real-estate investment company.

They were willing to do the right thing, to retrofit their buildings

and build entirely new ones

with new materials that would make it a low-carbon building altogether.

But you know what they told me?

Aside from a few markets in Europe,

they just weren't seeing the demand.

So I think we can take some inspiration from the other aspects of our lives,

like the food we eat or the vehicles we drive,

where we have shown banks and investors

that it's worth financing alternatives to meat,

or electric vehicles.

Let's bring that shift now into the homes in which we live,

and let's show them that it's worth financing more energy-efficient,

lower-carbon homes.

So when you're out to buy or rent your next home,

ask about energy efficiency,

and even better,

ask about the overall carbon footprint.

So there are three things we can do.

We can activate governments.

We can mobilize these large, institutional investors.

We can create the demand ourselves.

You know, as anyone in finance would hate to admit it,

money doesn't make the world go around.

This big, beautiful blue and green planet that we live on,

it's been spinning on its axis for long before we were here

and will continue to do so for long after we've gone.

What money can do is influence

just how long we'll be here to enjoy the ride.

Thank you very much.

(Cheers and applause)