As the world’s leading climate experts and advocates gathered in November for the United Nations Climate Change Conference COP27 in Sharm el-Sheikh, Egypt, the Columbia community convened experts on the financing of climate solutions.
Costis Maglaras, dean of Columbia Business School; Alex Halliday, founding dean of Columbia’s Climate School; and CBS professors Gernot Wagner and Bruce Usher (alongside dozens of Columbia alumni working across climate and sustainability sectors) offered their expertise, spurred conversations, and learned more about the roles and responsibilities of businesses in fighting climate change.
CBS hosted a panel of practitioners and academics at the conference to discuss a complex and critical topic: financing the transition to net zero. Moderated by Vijay Vaitheeswaran, global energy and climate innovation editor at The Economist, the panel tackled the question of how emerging climate solutions can rapidly attract the financing they need to scale. Panelists also considered heartening developments in the space, as well as more-frustrating sticking points. Their conversation highlighted four key takeaways:
1. ‘We’re in execution mode now.’
When Vaitheeswaran asked panelist Kara Mangone ’14, global head of climate strategy at Goldman Sachs, about her assessment of the climate investing landscape, she offered a hopeful one: “I think the headline answer to your question is that we're really in execution mode now,” said Mangone. “That’s the positive takeaway I would offer from this week in Sharm el-Sheikh.”
She noted that at this year’s COP and those previous, many businesses had made net zero pledges, following the lead of country commitments representing more than two-thirds of global GDP. That creates a demand for low-carbon solutions: “The work that’s being done now is really rolling up our sleeves and funding and investing in the areas that we need to,” she added.
This is precisely what panelist and CBS alumna Nili Gilbert ’03 is working on as vice chairwoman at Carbon Direct, a carbon management company dedicated to making climate science actionable through two separate businesses: the first assists clients (mainly companies and municipalities) with their decarbonization goals, and the second invests to build up the industry of companies that can help them do so.
Gilbert explained how the Glasgow Financial Alliance for Net Zero, where she chairs the advisory panel of technical experts, has identified four key types of financing for the transition to net zero. The first might be thought of as the low-hanging fruit — investing in the assets that are already part of the net-zero world (like solar and wind). The second is investing to transition the assets that can be transitioned over time along a 1.5-degree pathway (in other words, the assets that have been pledged to net-zero and the ones remaining to do so). The third is appropriately managing out the assets that simply can’t be part of a net-zero world, like coal. Finally, the fourth category is investing in climate solutions that eliminate, reduce, or remove GHG emissions, including zero carbon alternatives to high-emitting assets (for example, green hydrogen and carbon capture and storage).
“I looked at the problem set and realized that, if right now we have four parts of this portfolio today, then by 2050 it needs to come down to just two parts – because everything that can be transitioned will eventually be transitioned in a net zero world, and everything that needs to be phased out will be phased out,” Gilbert said. “When you look at it this way, you realize just how big the already-net-zero and the climate-solutions areas will need to become. That's why I’m so passionate about Carbon Direct, where we work on investing in and bringing to commercial scale the climate solutions field.”
2. The private sector has an important role to play in scaling climate innovations.
Mangone, in her role at Goldman Sachs, is also working on finding creative ways to solve the beguiling problem of how to scale up the climate tech that works (say, sustainable aviation fuels) but isn’t yet at a price point that is spurring demand.
“If, as a public corporation today, you can’t invest in those technologies, or if it’s three times the cost to invest in those technologies compared to your traditional approach, that becomes a very difficult problem to solve,” Mangone said.
One approach is to create economies of scale where possible. Mangone said Goldman Sachs has done this by, for example, matching Volkswagen, one of its clients, with Northvolt, a Norwegian supplier of sustainably produced battery cells.
“Being able to match VW with this emerging company that has great technology allowed them to effectively lock in a guaranteed purchase order of very high volume and help them lower the cost,” Mangone explained. “I think this is one of the big unlocks: that you actually have the ability to leverage innovation and key players.”
3. The private sector is moving, but it needs support.
Bruce Usher, the Elizabeth B. Strickler ’86 and Mark T. Gallogly ’86 Faculty Director of the Tamer Center for Social Enterprise at Columbia Business School, noted that one of the most important lessons from his 20 years in sustainable finance is the indispensable role of policy support. He pointed to solar power: Two decades ago, all of the solar that had been built in the prior 40 years totaled less than 1 gigawatt. Last year, the world built over 100 gigawatts.
“The technology works,” Usher said — but on its own, that wasn’t enough to scale up as quickly as it did. “The lesson is you need a policy that drives down the cost of the product that’s substituting for fossil fuels, to the point where the consumer is indifferent or prefers the substitute product.”
The panelists agreed that the US’s passage of the Inflation Reduction Act represented a major step forward for climate tech and financing. Still, Usher said, one necessary pillar of the transition to net zero is still missing: an effective carbon credits market.
“The reality is, despite a lot of concerns, disputes, and so on, we must have a functioning carbon credits market to get us to net zero,” Usher said. “It’s essentially impossible without that.”
Almost no business on the planet can entirely reduce emissions to zero, he explained. The same will probably be true for human activity more generally. “So there has to be some area where you can offset,” he said. “We have a lot of established technologies and emerging technologies that will allow us to do that. What we're missing is a mechanism to trade those offsets.”
4. More needs to be done to ensure a just transition.
Vaitheeswaran wrapped up the conversation by asking panelists how they believe richer societies — and those most responsible for climate change — can work to ensure that the net-zero transition is conducted in a way that considers the needs of indigenous communities and developing areas that are most vulnerable to climate change. How will these groups benefit from the economic opportunities created by the green revolution? How will they be supported as climate change intensifies?
“One of the fundamental realities that the climate community needs to recognize,” Gilbert said, “is that there can be no transition at all without a just transition.”
She added that estimates of the remaining investments necessary to achieve net zero run from two-thirds to upwards of 75 percent of capital being invested outside of North America and Europe. “We need to maintain long-term political support around the world for the types of policies that we've just been talking about,” she said. “We really need to understand the way that all of our goals work together as an interconnected system.”