Fighting Climate Change Through Finance: Insights from COP27

Amid increasing urgency to combat climate change, the 2022 United Nations Climate Conference, also known as COP27, brought together business leaders to discuss how corporations can take action to mitigate climate risks and, more specifically, the need for greater access to capital to finance the green transition globally. 

The UN Climate Summit kicked off this week as a new report by the World Meteorological Organization has found that the past eight years are on track to be the eight warmest on record, driven by ever-rising greenhouse gas concentrations and accumulated heat. Given the heightened attention on reducing carbon emissions, there is a greater need to not only support green tech companies but also scale the carbon market while increasing transparency.  

Below we highlight key takeaways from several panels that Nasdaq sponsored at COP27.  

Supporting Green Tech Companies  

In recent years, there has been a wave of new green tech companies, particularly in Europe. Many of these companies are developing innovative solutions that have the potential to address some of the key challenges in combatting climate change, according to panel moderator Fredrik Ekström, Head of Nasdaq Stockholm. However, to bring these solutions to market at scale, Ekström emphasized the importance of allocating capital toward green tech companies on the journey to establish a more sustainable society.  

Panel participants, including Normative Head of Science and Climate Research Alexander Schmitt, Minesto Chief Executive Officer Martin Edlund, Stockholm Exergi CEO Anders Englund and Swedish Energy Agency USA Country Manager Verena Adamheit, concurred, highlighting the benefits green tech companies gain because of both public and private funding.  

The Need for Increased Collaboration of Public and Private Funding  

Minesto, an innovative renewable energy company that generates electricity from ocean currents and tidal waves, was supported by both public and private funding, enabling them to become a listed company on Nasdaq’s First North Growth Market in 2015.  

“Our journey, I think, is a good example of a company that really has benefited from the synergistic, collaborative environment, even around public and private funding,” said Edlund. 

Prior to becoming a public company, Minesto was able to tap into both public and private funding as it spun off from Swedish automaker Saab and established itself as a standalone company.  

“There was public funding going into setting up the company, and then on our pre-listed journey for several years to prove the technology with private and public money in combination. And then the listing with Nasdaq in 2015 was also enabled by public grants and EU funding,” Edlund said.  

Similarly, Swedish utility company Stockholm Exergi, which is undertaking a carbon capture and storage project, required public and private funding to get it started.  

“We’re a very mid-sized small energy company in Sweden,” said Stockholm Exergi’s Englund. “We needed public funding in the start, but then we saw the market potential is enormous, and we need to also have the opportunity to have private funding. And then we are looking into how we can combine these two.” 

As both Minesto and Stockholm Exergi have found, to scale climate-related projects to make a global impact, all sources of funding are needed — and this is the time to back green tech companies.  

“The climate for investments in renewable energy has never been as positive and optimistic as it is today,” said Edlund. “I think that the combination of international development, banks, EU structures, national entities, such as the Swedish Energy Agency, enables those project investments by lowering the risk factor, by providing sort of a financial cushion into the projects. And so, by combining those sources, I’d say that it’s possible to overcome the scale of the investments needed.” 

Importance of Communicating with Data 

In order to attract new investors to climate projects, communication is essential. As Adamheit noted, when the Swedish Energy Agency, Energimyndigheten, is preparing to invest in a new project or company, the firm looks at whether the solution has proven technology that will make an impact and contribute to reducing greenhouse gas emissions, the feasibility of the solution and the business plan. As companies look to communicate their business plans with new and existing investors, data is critical in illustrating their journey.  

“That information has to come from some kind of data source, especially if you don’t only talk about green investments or investments that are labeled sustainable or green,” said Normative’s Schmitt. “Oftentimes, it’s a lack of data that we experience on our customer side… So that is important to bridge that gap.” 

Normative is working to bridge that gap, helping businesses measure exactly how much emissions they generate. Companies can then use Normative’s calculations to identify emissions reduction opportunities, minimize climate risk and find opportunities for growth in a net-zero economy. 

“Information, communication and data [are] the foundation” to launching and scaling climate projects, and accurate data is needed to assess a company’s environmental impact, said Schmitt. 

Negative Emissions Credit Trading  

Over the past five years, the carbon market has rapidly grown as it becomes an increasingly crucial component in the transition to a low-carbon society, Nasdaq’s Esktröm noted. While the carbon market continues to flourish, there is still a need for standardized frameworks and methodologies.   

Creating Credibility in Carbon Markets  

As Svenja Telle, Director of Project Origination at Base Carbon, discussed, a framework for the carbon markets is needed to reduce risk and establish the rules for financing.   

“We need to have a credible market, and that cannot just be publicly funded. It needs to be a volunteer carbon market or something which is actually reliable and credible for the consumers and the rest of the world. So, I think the regulatory framework around how to set up this trading around negative emission is absolutely crucial,” said Stockholm Exergi’s Englund.   

Telle also noted that when “thinking about technology risk and developing projects, we often rely on the standards on methodologies because it’s a way for project developers to pull liquidity out of the value chain management (VCM). The moment there is a methodology under which a project can register, it’s less risk for us to deploy capital. Plus, we have excess capital pulled out of the VCM in order to get a project, especially with a high CapEx, in the beginning off the ground.”  

While there is no standardized framework at this time, Climate Impact X (CIX) is working to increase transparency through its Marketplace, which hosts a list of curated projects ideal for corporate buyers and institutional investors looking to discover, browse and compare quality carbon credits.  

“The reason why we created Climate Impact X was we wanted to bring products to market and help them scale,” said Mikael Larsen, CEO at CIX. 

Capital Markets and Their Role in Supporting the Green Transition 

With geopolitical uncertainty, global inflation and the current energy crisis, Ektröm asked panelists how these new factors changed the capital market’s role in the green transition. The panel largely agreed that, against these factors, most climate agendas have not changed but refocused in response to these turbulent times. 

Energy Crisis = Energy Opportunity 

For Jennifer Anderson, Managing Director and Co-Head of Sustainable Investment and ESG at Lazard Asset Management, the energy crisis and the war in Ukraine have refocused investment opportunities in the green transition to create more energy security for the EU.  

“The Russia-Ukraine war has caused a review of EU policy around energy security and energy independence that presents new attractive opportunities for certain companies that are able to help deliver that,” said Anderson. 

Collaboration Across Industries and Borders 

For Ebba Grythberg, Global Sustainability Manager at Spotify, corporations taking part in the green transition are now focusing on creating networks across companies to create positive climate impact. 

Regulation as a Catalyst for Change 

Maria Simonson, Chief Sustainability Officer at SEK, sees how new regulations around climate impact and reporting are getting concretized in the credit process. Banks and lenders who need to regain their long-term investments and credit lines well into the future are influenced by the survivability of companies based on their green transition efforts.  

“We can’t underestimate the importance of regulation. With the Inflation Reduction Act in the U.S., this is a huge package of measures that is including tax rate subsidies that will really drive new industry, new jobs creation and new investment opportunities,” Anderson added. 

The Future of Finance and the Green Transition 

The panel ended with participants laying out the three actions they believe will push the green transition into its next phase. “We haven’t talked about this, but carbon pricing is still the piece that is really missing, particularly for investors and how they would value those negative externalities…that would really shift capital,” said Anderson. 

Carbon pricing topped the list of three motivating factors to accelerate the green transition: 

• Carbon Pricing: The use of market mechanisms to pass the cost of emitting carbon dioxide onto the emitters. 
• Regulation: Required climate impact reporting by companies through a global standard. 
• Collaboration: Cooperation across borders and industries to work together to reduce carbon emissions and make a positive climate impact in the future. 

“We’re at the end of the beginning,” said Simonson, “[Soon] we’re going to have the next wave and the next wave, and we’re going to get better and better.”