Input to the Talanoa Dialogue
The world can, and must, move to 100% climate-smart finance within 20 years; smart networking of information systems will make this possible.
Resilience Intel is a coalition effort to move the world toward 100% climate-smart finance. The process began with a core idea that the climate-smart value of investment and spending can be aggregated, to outline a vast and growing global market for climate-smart investment through mainstream finance.
This Resilience Intel submission on the path to 100% climate-smart finance addresses the Talanoa Dialogue question: How do we get there?
To achieve 100% climate-smart finance, we need to:
- define and deploy investable adaptation metrics,
- outline overlapping common goals for mitigation, adaptation and resilience,
- network Earth-systems data to finance,
- develop new business models and institutions optimized to leverage these interactions,
- and mobilize critical insights to move all finance toward macrocritical resilience imperatives.
We need to be able to measure the difference in value potential between practices that reinforce and protect natural systems and those that undermine and degrade them. Over time, these patterns show a clear advantage for investments that leave behind a wider foundation for the creation of value. Such investments generate external returns on investment (XROI). They are worth more to society, and so to banking and business, because they add value for all other kinds of investment.
We can describe this differentiation as ranging from low resilience value to high resilience value. By connecting Earth-systems science platforms to finance, we can measure not only climate resilience, but resilience intelligence across a wide array of macro- critical (economy-shaping) values.
‘Resilience intelligence’ is an overall term for the work of assessing how effectively we are future-proofing our businesses and our societies.
Toward Economy-wide Resilience Intelligence
Macro-critical resilience is the ability to withstand systemic shocks, in areas of value-creation that shape the overall potential of our society and economy. To achieve macro-critical resilience is to consistently reduce systemic risks, while fostering sustainable prosperity and building not only narrowly defined financial capital, but also human and natural capital. To fail to achieve macro-critical resilience is to be unable to guarantee the viability of any investment, as systemic risks expand and compound.
The Special Report of the IPCC on the science of limiting global warming to 1.5ºC above pre-industrial levels makes clear: We need to know more about Earth systems than we ever imagined we would, we need to consistently refine and advance the science of that undertaking, and we need to connect all relevant areas of inquiry to actionable insights that fit into everyday decision-making.
In the UNFCCC/COP process, through multilateral ministerial meetings, and through national and subnational policy, the Parties should work toward “economy-wide resilience intelligence”. We can map the optimal accelerated timeline for subnational, national, and international climate action, by 2020, if ministers, nation-states, city leaders and multilevel multilateral processes can ask and discuss:
- What is economy-wide resilience intelligence?
- How can we acquire sustained, evolving economy-wide resilience intelligence
- What external returns on investment will ensure multiple layers of value added, if we use this guidance effectively?
As was discussed during the In-Session Workshop on Long-Term Climate Finance, in May 2018, we support making this complex challenge a core element of the discussion at the 3rd Biennial High-Level Dialogue on Climate Finance, at the COP24. Ministers, heads of state, negotiators and constituencies, should ask and discuss critical challenge questions, such as:
- How well are we doing building macrocritical resilience?
- How do we know what we know about macrocritical resilience?
- What are we doing, and what more can we do, to accelerate external returns on investment (XROI) and economy-wide resilience intelligence (ERI)?
Networking Earth Systems to Finance
The Resilience Intel coalition is working to connect platforms that produce vital information about Earth systems to mainstream financial sector information. While our failure to account for impacts on the health of Earth systems has put our future at risk, that very fact now means Earth-systems insights are critical for understanding the resilience value of any given dollar of spending, investment, or finance.
One of the most misunderstood consequences of the global unsustainability crisis is the erosion of the overall natural, human, and capital resources available to sustain industrial prosperity. When industry leaders lower their costs and avoid market risk by deputizing natural systems and vulnerable people to absorb long-term harmful impacts, they generate an eventual costly and chaotic collapse in overall value.
To gain operational insights into the interactive resilience value of spending and investment choices, we will need to connect observational platforms that generate data regarding the health of Earth systems to data platforms that tell us about socio-economic trends, consumer behavior, supply chains, and performance in the financial sector.
A coalition effort can achieve this integrated generation of actionable insights, by drawing know-how and resources from the public and private sectors, from national, regional and municipal authorities, and leveraging the insight-integration value of new technologies (from micro-satellite constellations and autonomous soil quality sensors to distributed ledger technologies and advanced distributed micro-grids).
Budget numbers, future investment projections, will not hold up if compounding climate disruption is left unchecked. We have the capability to know enough to begin building a mainstream standard of operational climate solvency. It is, then, critical for every nation, indeed every investor and every institution, to take actions that will foster a rapid expansion in economy-wide resilience intelligence.
Levers of Action
In a world characterized by unprecedented rapid change, adaptive capacity is critical. Adaptive capacity is not only a measure of ecosystem or infrastructure resilience, but also of human capital. What people can do to achieve macro-resilient outcomes in any given case is the human capital at work in climate-smart future-building.
Parties should look for levers of action to support such new ways of working toward climate-smart outcomes. Specific new business models and new multilevel collaborative institutions will arise out of this discussion. Some of these business models will relate to soil health and agricultural sustainability, or to the financing of these practices.
Soil Carbon: A simple change in local property value policies, to count soil that is richer in carbon, water, or microbial life as a more valuable asset, can generate a cascade of positive effects, especially if offset with a corresponding tax incentive for farmers who work to achieve and maintain such conditions.
Farmers have more equity, more borrowing power, and more investable land. Their harvest is more likely to be sustainably grown, and to bring higher market value. Their land is more resilient, their crop-planting more adaptable. This makes it more affordable to insure the land and the crops at reasonable prices, further motivating a shift away from resource-depleting practices. Markets then go to work on the delta in value between unsustainable (higher risk, lower return) commodities and sustainable (lower risk, higher return) commodities.
Technology will be deployed to ensure performance, insurability and investability over time, and so locally rooted soil ecology finance corporations will logically follow, to assist in the delivery of the appropriate resources to the appropriate markets. Such local financial companies will benefit from the wider market demand for the relevant products and from incentives for sustainable practices.
Correcting for XROI: Straightforward national policies to correct market failure and price negative external impacts are vital optimizing agents in enabling the fast pace of innovation in all sectors required to avoid catastrophic climate disruption.
A steadily rising carbon fee, with 100% of revenues returned to households, for instance, can achieve a rapid correction of the carbon-fuel market failure, without generating the macroeconomic chaos of an overdue financial market correction.
A flexible national backstop price on climate pollution, like the one recently enacted in Canada, and based on the carbon fee and dividend model, aligns with the nationally determined structure of Paris Agreement implementation and allows for a collaborative, diversified, international scaling up of such measures.
A shift in national subsidies will naturally follow, and help to drive the transition to climate-smart finance as the universal standard. While public spending across the world now invests US$5 trillion annually in maintaining the market dominance of carbon-emitting fuels, market trends are already making this an unsustainably high-risk, low-return investment.
Direct Financial Action: The rapid expansion of climate-smart financial instruments, the vast promise of a global climate-smart financial sector (mainstream), the accelerating interoperability of disparate data platforms, and the practical inviolability of distributed ledgers, all mean the trend toward climate-smart finance will logically accelerate, and the shifting of energy subsidies will be one of the highest-value areas of public investment in coming decades.
All stakeholders have a right to know whether market forces build or erode macro-critical resilience (the possibility of their sustained wellbeing). We recommend the Talanoa Dialogue and the 3rd Biennial High-Level Dialogue on Climate Finance be the watershed moment when economy-wide resilience intelligence becomes a shared goal for all Parties.