Resilience Intelligence Brief to the In-Session Workshop on Long-Term Finance

At the 2018 In-Session Workshop on Long-Term Finance, we asked that a specific operational question be put to ministers:

What do you know about the macro-critical resilience intelligence of your nation’s economy?

That would logically lead to a series of further questions:

  • Do you know how to learn this?
  • Do you have systems in place that can provide this kind of information?
  • Do you have a strategy for achieving economy-wide resilience intelligence?
  • Have you aligned day-to-day policy and spending decisions with the Paris Agreement or the SDGs, to err on the side of greater resilience?

It would also move the discussion about whether or not to define a particular budget closer to where it needs to be — defining not how much or how little money will go to climate priorities, but rather how quickly your whole economy can routinely leverage climate-smart finance and practice.

It is necessary to move into that conversation as soon as possible, because:

  1. Ongoing climate disruption will undermine fiscal and macroeconomic stability — the foundations for future prosperity.
  2. Defining too narrowly what kind of investment serves climate priorities leaves far too much investment serving other priorities.
  3. The opportunities inherent in a fully climate-smart economy are most accessible if climate investment covers the whole marketplace.
  4. There is no way to avoid the worst costs of stranding carbon intensive assets except to invest optimally to get beyond them.

Meeting the Challenge

The complex challenge of providing detailed reliable information about the macro-critical resilience intelligence of a nation’s whole economy can be simplified by refocusing on another question:

How can a particular Nationally Determined Contribution become an economy-wide national climate action plan?

This also leads to other, related, pathway-illuminating questions:

  • What new levels of decision-making and authority can be brought into the process, incentivized, and mobilized to raise ambition?
  • How does aligning these actors with climate-smart finance and practice improve quality of life and the foundations for generalized prosperity?
  • Can opportunities for national government leadership emerge from subnational climate leadership?
  • What geopolitical benefits emerge from integrating climate-smart finance and practice into decision-making at all levels, in all sectors?

The elusive innovation economy — in which whole nations are positioned to study the future, create the future, invest in the future and prosper from that investment — comes into view through the answers to these questions. Adapting existing models of political and business leadership to this standard changes what is possible when we talk about both the sourcing and the delivery of climate finance.

Assessing the Opportunity

The Resilience Intel team has been working to aggregate all finance that can be counted as climate-smart, due to its being committed in some way to innovations and standards of practice that are aligned with better climate outcomes. That work so far has identified $3.56 trillion that is already committed to climate-smart priorities.

Most of this money is not yet moving. There is also a need to refine the aggregate, to better understand how funds committed by different institutions overlap. The flows are not necessarily duplication, but may depend on certain conditions being met by other institutions.

A critical step in the process of developing operational resilience intelligence across an economy is the linking of Earth science data to financial and socio-economic data. Where this is done, vast new opportunities open up. By making otherwise hard to see external returns on investment (XROI) visible, networking Earth science data to finance transforms pervasive inefficiency into distributed, inclusive value building.

Seeking resilience intelligence means looking for value-building connections that would otherwise be ignored. This is not just a matter of philosophical outlook; it is a process of active empowerment of decision-makers — in government and in the private sector, in entities large and small — to invest in value-building resilience-building opportunities more precisely and routinely.

Revealing New Returns on Investment

How to expand and sustain access to climate finance — a core question in this year’s Workshop on Long-Term Finance — is a loaded question.

  • Finance flows to revealed opportunity.
  • The question is: What reveals the opportunity?
  • Is it pre-existing wealth or the possibility of vastly expanding the operational efficiency of a particular economy?

XROI provides that opportunity, so resilience intelligence is the much more robust engine of new value.

  • In conventional modes of resource allocation, the question is whether X will be invested in one place or another. ROI is secured and expanded by providing structural guarantees, and future interest payments are built in as one mode of de-risking.
  • Resilience intelligence brings a wider range of possibilities: better, more complete information about value creation reveals a landscape of leverage points, where new investment or policy change can trigger a cascade of positive impacts.
  • The result of this XROI-driven approach is not a loss of de-risking or investor appreciation, but a more integral, dynamic, innovative, and inclusive economy, where locally rooted value creation expands the overall pool of natural and human capital.

Put simply:

  • Connect Earth science data to finance.
  • Look for value-building resilience-building connections.
  • Make investments that avoid the pervasive inefficiency of degraded Earth systems value.

Activating New Value Creation

This will activate a wider landscape of new value creation, and align human-scale experience with global goals. Specific examples stand out:

  1. Simple policy changes that value carbon-rich soil can empower small farmers to participate in a vast economy of scale across a region, while mainstreaming sustainable farming, sinking carbon to reduce climate disruption, and helping to build ocean health and resilience.
  2. Carbon pricing strategies and related policy changes, aligned with the PARIS principles can create a base of incentives for climate-smart investment in all sectors, across whole economies, revealing opportunities that would not be visible in the conventional resource allocation model.
  3. Strategically coordinated climate transition bonds, designed to accelerate the market-value depreciation of pollution-intensive assets, can create opportunities for investors of all kinds to move money into clean technologies, in any sector, in any country context.

Finally, efforts to identify hidden value-building opportunities aligned with climate finance should consider the human capital value connected to the climate finance qualifications at issue. While MRV standards seek reliable information that new climate finance is, in fact, giving us reduced greenhouse gas pollution or more resilient infrastructure, consistent performance against those standards will require locally rooted, integral human capital — knowledge, entrepreneurial capability, and leverage to reinvent in line with broader trends.

Operational resilience intelligence reveals not only the Earth-systems value of specific activities, but also the human-scale experience — quality of life, public health, access to redress, and technical know-how — inherent in achieving meaningful XROI. The resulting creation of new value is not just a measure of enhanced climate resilience; it is a deeper and broader landscape of opportunity for economic actors at all scales, especially those with the least leverage in the old economy.

Going Forward

We view the work of climate-smart asset-building as necessarily inclusive of not only finance institutions and investors, but people in communities, and vulnerable populations. We must integrate climate-smart asset valuation into everyday lives, public policy, and the long-term aims of entire sectors and areas of governance.

In the next year, the Resilience Intel commitment is to refine the aggregated climate-smart finance data, map critical Earth systems insights to commonly used financial sector information flows, and identify human-scale XROI values in key areas at issue in the long-term finance discussions.

This report was produced by the Resilience Intel team, with research provided by Resilience Intelligence Fellows Shantanu Agrawal and Caetano de Campos Lopes.