Is climate-aligned finance the next big thing for decarbonizing finance?

Charting the Course to Climate-Aligned Finance – Rocky Mountain Institute, March 2020

If you’re on a diet, you can’t just count the number of salads you’re eating. You have to count the ice creams. 

And yet, in our field all too often, climate finance has been associated just with the salads. Hey, how’s, how’s renewable energy investment going, Oh, it’s up by 20% year on year.

Hooray. That’s does not match up exactly to the accounting that we need to make big progress on emissions.

Denise: Welcome to episode 8 of New Climate Capitalism. Today’s episode I speak with Paul Bodnar. He’s Managing Director at the Rocky Mountain Institute, and we’re going to talk about their recently launched Centre for Climate Aligned Finance.

So what is climate-aligned finance, and will it become the new gold standard for greening the finance sector?

It’s all about bringing a financial institution’s loans and investments into alignment with a 1.5 C consistent emissions pathway.

Or, in other words, alignment with the Paris Agreement.

Now Paul happens to be an expert on the Paris Agreement because he was a US negotiator on climate finance at the COP21 meeting in Paris back in 2015. We talk about what happened in the suspense of the final hours of that meeting, how that kicked off the developments which have shaped what we call climate finance today, and why climate-aligned finance could turn out to be a new gold standard for a field where progress has been way too slow.

Spoiler alert: this new approach is inspired by the model of the shipping finance sector.

It was a real treat for me to talk to someone who is fully literate across all aspects of climate action: Paul brings together the diplomacy, the politics and the finance of climate change into a clear and coherent whole.

I am sure you’re going to enjoy this episode.

Denise: so could you tell us whether you feel more like a policy person with a strong interest in finance or, um, more of a finance person? Who’s worked a lot in policy.

Paul: That’s a great question. And one that I’ve been struggling with a little bit throughout my career, I think the right answer is that I’m a climate person.

I’m really interested in international climate action. And at times the best place to be to work on that has been in finance or carbon markets. And at other times it’s been in the public policy domain. I started out in finance because, as an American with an interest in this and the public policy side, the, the years after my graduation from university in 1999 with the Bush administration in office were not a great time to be working on climate policy, per se.

At that time, it was a period of implementation of the Kyoto protocol in Europe. Uh, even though it took a while for the Kyoto protocol to be ratified and enter into force. In those years in the early two thousands, the most exciting frontier here was the carbon market. It had been theoretically created by the Kyoto protocol, but not yet implemented.

So those were the fun years, uh, that I got to work on joint implementation and the Clean Development Mechanism, and really try to push the frontier of how you could finance real emissions reductions using those mechanisms. And I didn’t study finance at university. So I read a book called the “10 day MBA”, and that was sort of the totality of my formal training and the rest I learned along the way.

But I started a company called Vertis environmental finance with a friend and colleague in Budapest in early 2001. That company is still around, still one of the main environmental brokerages in Europe. And we kind of made it up as we went along. But then in 2008, 2009, uh, as the world was gearing up for Copenhagen and President Obama was elected, you know, that was a time to really work on policy.

And so I think of my career as a little bit, like trying to surf. Um, where you have to sort of jump from the crest of a wave to another wave, uh, at the appropriate time. And so if you want to be doing the most interesting work and learning the most, you have to be able to switch sometimes between different sectors. 

And so there were times again, when the private sector was the most exciting place to be. And sometimes when, when the public sector was the most interesting place to be. 

And right now I would say that we are at the end of a 30-year trial and error project that culminated in the Paris Agreement at the multilateral level.

And so the real action right now is not necessarily in the multilateral negotiations space, but in the private sector and the real climate solutions space. And it’s a huge space. 

And so I’ve chosen finance because finance is the lifeblood of all the sectors. So if you can shape the allocation of capital, the cost of capital, the decisions that investors make, you can shape all of the real economy sectors that generate greenhouse gas emissions.

Denise: Um, I’d like to take a moment to just track back to that historic moment in, in, uh, Paris in December of 2015, uh, when, when you know, the world’s governments adopted the Paris agreement, um, that thing was 30 years in the making, as, as you pointed out, uh, And yet it’s set in motion a very fast track of events,  changes in finance that we’re still watching, um, kind of play right now. If we go back to that a very emotional moment. I remember myself, ah, uh, I was able to watch it from the overflow room. 

Uh, and, and, uh, people were hugging each other when the gavel came down.

Um, what do you remember most about that time? Uh, and, and what was your theory of change back then? And what is it today?

Paul: Well, look, UN climate negotiations are messy and for about four years, I served as the US lead negotiator for climate finance, um, and then went to the White House and had a broader role.

But, and, and that’s how I was in Paris representing, the White House rather than a particular issue. But because I’d worked on it for a long time.

The way that these messy negotiations happen is that people argue for thousands of hours without making any progress and without even necessarily intending to make any progress.

And then, uh, as the deadline nears, things become more serious. But that’s not a very efficient way to run a negotiation. It means that there’s a lot of wasted time for 98% of the period that’s allotted for these sorts of negotiations. And then things get really messy at the end. I think the French did a heroic job pulling together an extremely complicated text that was not only the Paris Agreement, but it was packaged with a decision to adopt that agreement that got into another 30 or 40 pages worth of detail. 

And so I can’t remember the exact number of pages, but, uh, but it was an incredibly complex document that the 200 countries had not necessarily made a great deal of progress in resolving before the last few days. And the French had to make a lot of calls. 

The memorable experience I had in those last few days was that I was asked to represent not just the United States, uh, but the, a group of developed countries that included the European Union an what’s known as the umbrella group, which is other non EU developed nations, like Japan and New Zealand and Australia and Canada and the United States in the final negotiations with representatives of developing countries. And there were not many of us in that room.

But we were in a small windowless room in this giant conference center on the last night.

What was striking about is there, there might have been 15 paragraphs in the Paris Agreement and its accompanying a COP decision on finance, and we only got through about five of those. We did line-by-line negotiation on the final night of the most important provisions, but we just didn’t get to the others.

And this speaks to the craziness of the process. And so the French had to make their best judgement on the other paragraphs about what exact words to use, how to shape those provisions. And of course there was a negotiating history for those other paragraphs, but it wasn’t like you could say, Hey, you know, somebody representing the countries actually negotiated those line by line.

And so the French must have been very nervous indeed when they put that final version of the agreement out there for everyone to consider because they knew that there was quite a lot of that they themselves had to make the final calls on. It was not just an assembly of a negotiated text by all the parties.

It was, you know, some proportion of that text had been negotiated , and the rest they just had to kind of make a judgment call.

Denise: How many paragraphs in total concern finance in, in the Paris agreement? Or just roughly like, is it, it’s a really small part of the agreement? Isn’t it?

Paul: Yeah. I, I, there were around 15 paragraphs that straddled the agreement itself and the decision of the COP to adopt that agreement. Those two texts need to be understood together. And so they were negotiated together and adopted together. 

Um, I know that’s confusing when you go and look up a nice glossy version of the Paris agreement, you only go to the Paris agreement itself, not the guide to the Paris agreement that was also adopted alongside it And which forms an important part of what was decided. 

But across those two documents, it’s about 15 paragraphs. And as I say, uh, we really only did the word by word, uh, on five of those approximately.

Now, again, that people had been working on this stuff for years and years, it was no mystery. Um, What, what the landing zone would be from an negotiations point of view on most of it.

But I just think it’s, it’s worth people understanding that when they look at something like the Paris agreement, they might assume that 200 nations toiled word by word and agreed on every single word themselves. And then just the French, assembled it into one document and printed it and waved it around and put the gavel down.

But that’s not the way it worked at all. And. A lot of the credit does go to the French for really understanding the politics, having their finger on the pulse of it, extremely complicated set of geographic groups and interest groups and making the final call on a lot of, uh, specific elements that they felt would be acceptable to everybody and would not be a red line for anybody.

Because if you stick one red line. Absolute red line in a text like this, then a party will stand up and say, I can’t accept this. And just the logistical act of going back and renegotiating that takes another day with 200 countries.

Denise: And, and that content is mostly about, uh, uh, financing adaptation in less developed countries isn’t it. It’s not about the stuff that, uh, you know, we want to talk about today, which is climate aligned finance in sort of the financial sector.

Paul: Right. So the way that climate, so climate finance as a term, I think, did emerge from that political multilateral process. Yet, it is absolutely true that the way that term is used in multilateral negotiations and the UN and the Paris Agreement is a much narrower version of what we would consider to be climate finance in terms of shifting capital flows, accelerating capital stock turnover in the real economy.

The political process and the Paris agreement itself focused on, I would say one aspect, which is how developed nations are supporting, mainly through their taxpayer funded budgets, the developing nations’ climate action, both adaptation and mitigation. 

And there was a commitment to mobilize $100 billion per year from public and private sources that developed countries made back in Copenhagen and use 2020 as the target year for reaching that level. That number was then extended to 2025 through the Paris Agreement.

But, you know, a hundred billion dollars a year. North to South flows is, politically important, but it is just a drop in the bucket compared to the transformation of the financial system to support de-carbonization.

Denise:  right. What’s so interesting about that is that the Paris agreement, um, sort of was the launch pad for this pretty rapid transformation of the financial sector, which your recent report, uh, sort of tracks in several phases, 2015 as the start then 2017, the disclosures. And then now getting into this climate alignment, which, uh, the report says, is the new gold standard that’s emerging.

But in fact, the Paris agreement says almost nothing about any of this stuff. And the expectation was that the financial sector would just self-organize, as one of the non-state actors to, uh, implement the Paris agreement. Is that more or less correct?

Paul: Yes, I think it’s correct. There is language in the agreement about the need to align financial flows, to support the objectives of the Paris Agreement on mitigation and adaptation, you know, between net zero emissions by the second half of the century, for example, but the Paris Agreement is an agreement among nations and those who negotiated it really only speak the language of governments.

I think it’s reasonable to look at the Paris Agreement as a necessary, but far from sufficient, uh, framework for driving the de-carbonization of the global economy. Because after all the global economy is organized, according to sectors, just as much as it is according to nations. And when you create a set of incentives for nations to go, uh, hide away each of them and formulate their own emissions targets. And then present those to the world that does not cumulate into a workable plan for decarbonizing the global steel industry or the cement industry or shipping or aviation or oil and gas. Right. 

And so, um, The focus of the Paris Agreement on nations needs to be complemented now by a second dominant axis of climate action, which is sectors and finance is one of those sectors.

And it’s sort of a meta sector if you like. Um, right. But, but that’s really what, what needs to happen now? Paris sent a valuable signal into the market that said that every jurisdiction in which a financial institution might be domiciled has committed to ratcheting down global greenhouse gas emissions to net zero over the coming decades.

And so, um, when, when we talk about transition risk, right, as one of the ways that financial institutions think about climate and their business. That’s a pretty strong signal that yes, one way or the other, the, their clients and the industries that they bank or the industries that they own right through their shareholding as asset owners are going to have to go through a major change.

And it did spark all of those useful conversations in the financial sector. Now, I think if you forget about the Paris Agreement for a minute and just look at the journey that the financial sector has been going through in the last couple of decades, it’s a very interesting story that the financial sector has been trying to figure out what role it should play in this story of sustainability and decarbonization.

And it’s sort of wandered around and experimented with different frameworks. 

So we started with the Equator Principles, which are a general set of principles for managing environmental and social risks. There have been waves of green finance targets that big banks have adopted saying, we’re going to do a hundred billion dollars of green business or $200 billion or $500 billion.

There’s a wave of commitments that these banks have made to stop supporting dirty activities, right? Like coal or tar sands. And then of course the wave around disclosure. And these things are all very important, but they don’t necessarily add up to a coherent and adequate strategy for the financial sector as a whole.

And that’s where we see a lot of promise in this holistic concept of climate alignment, which is now starting to take hold. Um, and whose basic thesis is, what would it take for a financial institution to only finance or invest in activities or companies that are on a trajectory to net zero consistent with the science.

And that’s okay. Really great way to, to fold in all of these other things like disclosure and more green and less dirty, but it’s extremely difficult to do in practice.

And that’s why we set up the Center for Climate-Aligned Finance at Rocky Mountain Institute to really be the engine room. That takes the financial sector’s perspective on these questions holds the high level of ambition on the one hand and also holds the recognition of the difficulty of that journey on the other hand.

Denise: Um, so I wanna ask you, uh, about the sectorial thing in a minute, but just to stop on the Rocky mountain Institute, uh, for people who, who don’t know what it is.

Paul: Rocky Mountain Institute is almost 40 years old and was founded by Amory Lovins and Hunter Lovins at at a time when very few people were talking about renewable energy or energy efficiency, and it really did a lot of the path breaking work in those early years to help people understand that you could, for example, decouple energy use from GDP growth that used to be understood as an iron law, the more GDP grows, the more energy you need to use to make it.

And that was proven incorrect. And so RMI has been really at the forefront of thought leadership and also demonstration particularly for market based approaches to the clean energy transition and climate action. 

But of course, in the last six or seven years, so much has changed in the world, as you noted, as decarbonization really takes root in all the countries of the world, all of the sectors of the world.

And so we have always thought of our mission as a combination of think, do and scale. We are a think tank in some respects, but we are also what some call a do tank, where we go out and implement solutions ourselves that we think will accelerate the transition. So we’re not just report writers.

We structure in particular collaborations among business that advance this objective. So we set up something which is now called the Renewable Energy Buyers Alliance. And which brought together Fortune 500 companies in the United States who were looking to procure renewable energy for their electricity needs, which are enormous.

Right? If you think about a company like Google or Microsoft or Walmart, and, but they didn’t know how to do it. And so we created this platform, a membership based platform that ran boot camps that showed them how to do that. The technical financial aspects, legal aspects of procuring renewable energy.

And that has really driven a large part of the increase in renewable energy capacity in the United States in the last few years. So that’s an example of the kind of work we like to do beyond the think domain in the do and scale domain. 

So the center for climate-aligned finances is our contribution to the financial piece of that puzzle.

We work in many other sectors, ranging from electricity to transportation, buildings, aviation steel, mining, you name it.

Denise: Right. So, um, I want to hear about climate alignment. Um, and, uh, if you could explain to me, what is this new approach, uh, you know, why is it so popular and, and explain this, the connection with the Poseidon principles, which, uh, was something that I had never heard of and is s a kind of a best case use study for this approach.

Paul: Certainly. So I think the focus on climate alignment is partly driven by the rise of the net zero paradigm, which, which has a root in the Paris Agreement itself. But the Paris Agreement and says that we should reach net zero emissions by the second half of the century. And more recently because the IPCC science has gotten clearer and starker, the consensus among many in this field is that we should aim for net zero emissions by 2050. 

And so if we want to keep 1.5 degrees within sight as an outcome, uh, then we need to cut global emissions by approximately half by 2030, according to the IPCC. And again, net zero by 2050. If you map that on, on, not just onto nations but onto sectors, then it’s evident that the changes that are going to have to happen in the high emitting sectors of the economy are very significant. And the simple way I think about it is it’s about capital stock turnover. So we have a global economy which produces valuable services, um, and the assets that cause emissions are the ones that provide the services for us.

We want heat and light and mobility. Right. We just, we would like those things without the emissions that are currently generated by the assets that provide us those services like cars and power plants and cement plants and steel plants and so on. And so we need to scrub the carbon out of the assets in the global economy while continuing to grow that economy and supporting the services that it provides us.

And that is about more than just accelerating the pace of green investment. Right. You can’t just measure progress by saying, Oh, how much green investment is there? Because actually the problem you’re addressing not the green investment, it’s the legacy assets in the economy that are generating emissions.

You need to retire those assets. They are the ones causing greenhouse gas emissions. 

So to be a little controversial, building more wind turbines, doesn’t reduce greenhouse gas emissions. What reduces greenhouse gas emissions is shutting down coal fired power plants, accelerating the retirement of internal combustion vehicles and replacing those with electric vehicles. 

And so that holistic perspective, which is that the energy transition is about more than just building more green. It’s about transitioning out a set of assets in the economy that generate emissions underlies the concept of climate alignment. 

So just to use an analogy. If you’re on a diet, you can’t just count the number of salads you’re eating. You have to count the ice creams. 

And yet, in our field all too often, climate finance has been associated just with the salads. Hey, how’s, how’s renewable energy investment going, Oh, it’s up by 20% year on year.

Hooray. That’s does not match up exactly to the accounting that we need to make big progress on emissions.

Denise: So, um, uh, if I try to kind of visualize what you’re talking about, uh, I’m thinking about those hard to decarbonize sectors, uh, you know, the cement, the, uh, you know, long haul road, transport, uh, building, um, things like that.

Um, maybe can you, is there an example, do you have an example of an organization or, um, Because I, I can’t quite understand whether this is about cutting off access to finance for those sectors to force them to transition, or is it something more gentler, uh, you know, changing something about the way those companies and sectors have access to capital that, uh, you know, really gives them a big push to transition.

Paul: Sure. And we’ll come back to the Poseidon principles. So the analogy we find useful is, uh, is a bathtub, right? So imagine that a bathtub is full of dirty water. And that is an analogy for the fact that we have a global economy that is generating the services we want – like the ability to take a bath, but it is generating too many emissions.

So the water is dirty. The goal here is to replace the water in the bathtub. With clean water, right? So it’s full of dirty water now and you want it to be clean. So what do you need to do to achieve that? Well, first, obviously you want, you do want the ability to pour clean water into the tub and that, and that is what the focus on green investment represents more green, more clean, right?

Secondly, you have to shut off the supply of dirty water into the tub. And that is about stopping the financing of the kinds of assets we don’t want any more in the economy. 

That’s what the whole conversation about, uh, uh, shutting off, uh, financing for coal fired power plants in Southeast Asia is about.

Um, the third thing you need to do is to increase the size of the drain because after all the tub is already full of dirty water and you need to get the dirty water out so that you can make room for the clean water and, and increasing the size of the drain is an analogy for capital stock turnover and measures that we implement to accelerate the retirement of existing assets.

Stranded assets are not a good thing for, for the economy. We don’t want assets to be stranded. Um, that causes pain for all kinds of stakeholders, whether it’s labor or communities, capital, What we want to do is find ways to hasten the retirement of high carbon infrastructure and vehicles, and replace them with clean alternatives that are generating the services we want.

And so, one well known example of expanding the size of the drain is the US Cash for Clunkers program that was implemented during the last financial crisis, which provided a financial incentive for ordinary consumers who own vehicles to trade in the highest polluting oldest dirtiest vehicles and replace them with more fuel efficient vehicles.

Another example would be the opportunity we have now to retire and replace coal fired power plants that are no longer economically competitive with clean energy alternatives.

And finally, the final lever of change besides the clean tap, the dirty tap and the drain on this bathtub is the question of how much water you need in the bathtub in the first place.

And this is where efficiency comes into the picture. It is not an iron law that we need to build more and more and more renewable energy or electricity generation capacity on a mature grid, because if we improve our energy efficiency, we can actually reduce the amount of capacity we need.

Similarly, if we’re moving towards a future in mobility which is autonomous, shared, electrified vehicles, at least in some parts of our landscape, we may not need as many cars on the road. And so the amount of assets that we need in a given sector of the economy to produce the services we want can also decline, not just inexorably increase.

How does this all add up?

Well, um, if you look at the shipping sector, that’s probably the furthest ahead on a global level and thinking about this topic of climate alignment, and it’s due to a variety of factors, which we don’t probably have time to get into here. 

But what you had in the shipping sector is, there’s a UN agency called the International Maritime Organization that sort of governs global shipping. Because ships on the open sea are not considered part of a nation’s carbon accounting, right. That it’s a, it’s a completely different category. 

So there’s 50,000 little power plants floating around on the open ocean that constitute the global shipping sector. And, um, they decided to negotiate a climate target for the shipping sector as a whole globally, which was negotiated and adopted by the International Maritime Organization a few years ago.

And that target, which is not a net zero target, to be clear, but is a significant cut in the emissions of that sector. 50% in absolute terms by 2050, which depending on your assumptions about the growth of global trade on water implies about an 85% reduction, I think in the carbon intensity of shipping, right?

Denise: Can I just interrupt you when you say they negotiated? Is it the same, like in the UN process for the Paris Agreement, like the representatives of the worlds’ governments under this International Maritime Organization? In a consensus, a working method negotiated this target?

Paul: Sort of yes, the representatives to the IMO are governments, but because it’s a particular sector, there’s a sort of tighter relationship with other stakeholders, including industry.

Yes, you have all the nations of the world, but it is a finite sector where the finite set of issues and a single set of technologies. And, you know, it’s, it’s a less complicated task than getting 200 countries to agree on what to do about the world’s forests, I would say, um, 

But, but still, still challenging.

And so that those countries that send representatives to the IMO and the industry that they represent and in effect, which they want to promote, they want to promote the global shipping sector. They want to make it easier to do world trade. They’re not there to restrict the shipping sector after all.

They want to make it operate in a sensible way, whether that’s environmental or other factors, piracy, all the other issues they deal with. Um, so they negotiated this target and that made it possible for banks that finance ships to say, okay, now we know what the internationally accepted standard is for this sector. 

It’s a 50% reduction by 2050, and we can draw lines between the present and the future, the curves of emission reductions – whether they’re linear or nonlinear. Um, we can do that for container ships. We can do that for cargo ships. We can do that for tankers. 

And so the banks were then able to say, look. 20 banks, I’m making up the numbers precisely, but 20 banks account for 50% of all of the senior shipping debt in the world. 

And therefore in the shipping sector in particular, finance is kind of a choke point for emissions because a small number of actors can, and in this case, did organize themselves with the help of some organizations, including Rocky Mountain Institute and the Global Maritime Forum to say, we commit to only financing to having our shipping portfolios, as banks, be aligned with this long term trajectory of emission reductions that this sector has agreed. 

And they actually negotiated a formula and a set of transparency provisions to make sure that if you signed up to this commitment, you would have to be absolutely clear that you were meeting it as a bank.

And so a bank has a, you know, on its balance sheet has, let’s say if it has a shipping desk, it has a number of ships that it’s financed, and those you can calculate the emissions profile of those ships.

And what this agreement essentially does is that that portfolio needs to evolve over time and in effect, it makes it difficult and eventually impossible for the participating banks to finance a dirty ship. Because it’s trying to make its portfolio cleaner and cleaner over time. 

And that goes back to what we were talking about earlier in terms of alignment and this whole journey that the financial sector has been going through because this approach, um, folds into it, the goal of financing cleaner assets, because that’s all they can do.

If they want to do business, they’re going to have to finance cleaner ships. It folds into itself the goal of financing, fewer dirty things. Because as I said, they won’t be able to do that and meet their targets and it folds into it, the disclosure, because the agreement, the Poseidon Principles, as it’s called, uh, requires very clear transparency on what the banks are doing.

Denise: So how, how would this work um, uh, for, for all the other sectors? 

Paul: So we believe that the time is right to try to replicate this success in the shipping sector, which by the way, goes beyond the Poseidon principles for banks and includes now the work that cargo owners are doing, those who ship their goods on ships who are also trying to use the IMO target as their standard for saying, Hey, we will only allow you ship owners to, um, we will only engage those of you who are willing to abide by this standard. 

And so what’s going on in the shipping sector, more generally serves as a lighthouse for other sectors of the global economy, like steel and cement and, uh, aluminum and, and a variety of the other energy intensive end use sectors.

And essentially we have an opportunity in the coming years. To stand up and a complement to the Paris agreement, but with a sectoral lens and in a way that’s led by industry. What the shipping example shows is that if you get an industry in the room with its customers, its shareholders and its bankers, and of course it’s regulators and everyone can agree on the objective of trying to forge a generally agreed decarbonization pathway for that sector that makes clear where that sector should be in terms of emissions this year, five years from now, 10 years from now, 15 years from now. And so on down to zero, if everyone can agree on what that ought to be under the right conditions as the IMO in effect did, but not to zero, then you can hook all sorts of commitments onto that pathway.

Everything becomes easier after that. Banks can say, okay, that I now have my guidance for my lending policy. Um, investors can say, you know, pension funds can say, great. I now know what should guide my investment in divestment decisions. Buyers, customers of those industries can say, great. Now I know how to write my procurement policy, right? I will only buy in the case of steel, for example, green steel, as, as defined by this pathway.

Governments can then say, great. Now I have an agenda for my research and development spending and my regulatory agenda. And so we believe that thinking of sectors as the unit of analysis can be extremely powerful as a complement to the Paris agreement and its way of thinking of the world as organized into nations and we are going to be working with a group of other organizations to make it so.

Denise: This is a big, this is a, this is an election year in the U S uh, if we’re looking at a Biden presidency coming, uh, in November, uh, what will this mean for your work? Uh, around the climate alignment?

Paul: So I think we’ve learned some things about climate action in the United States during the Trump presidency, uh, we were forced to learn certain things. One thing we learned is that the fixation on the federal government is probably overstated including in the Obama administration, which I was part of.

We did not do enough to think about how states, cities and industries controlled some of the most important levers that affect greenhouse gas emissions outcomes. We had a very much federal policy centric approach to the whole question.

And what we’ve learned during the last four years, because we were forced to is that if you, if you have to turn to uh, non-federal actors for leadership that, that should not really be understood as plan B. It should be understood as an essential part of Plan A. Because the pace at which we’re going to have to drive emission reductions in the United States between now and 2030 is so significant that we can’t afford to put blinders on and think, Oh, this is the federal government’s job.

As you were everyone else, the federal government will solve this. Well, let’s direct all our fire power and political energy at Washington. That is not the way we’re going to have to do this. And so there’s going to have to be a very sophisticated, uh, framework that the Biden administration will have to implement that really maximizes the ability of CEOs, mayors, governors, and other actors to make the decisions they need to make, rather than simply waiting for the federal government to issue executive orders or negotiate something in Congress. 

And so one example of that will be in the financial sector. Um, I don’t know that beyond initial forays into disclosure, that in the Obama era, we made a ton of progress on driving change in this area, through the financial sector.

And now we understand that it’s possible not just by requiring disclosure, but by encouraging this kind of dialogue between the financial sector and its clients, um, in a way that can become a flywheel of progress within certain industries alongside the drive for better federal policy. 

Denise: Terrific.

Um, we started out, uh, talking about how your career was, uh, you know, more about climate action as such as opposed to policy or finance. Uh, so can I ask you if you consider yourself an activist?

Paul: I think we all need to consider ourselves activists. Yes. If by activists, we mean that we need to push ourselves our immediate environments and broader society to faster action on this particular topic. Absolutely. That is what I’ve dedicated my professional career to, and I believe in it.

Action can take a lot of forms. Um, and there’s, there’s usually an inside and an outside strategy to getting large institutions to change their ways. And so sometimes it’s useful to be on the inside, uh, trying to make that change. And sometimes it’s useful to be on the outside, throwing tomatoes, uh, both are very, very valuable pieces of an overall change strategy, but, you know, I think climate is so different than many of the issues that we’ve dealt with as a society. 

It’s one in which winning slowly is the same as losing, as Bill McKibben said. And so you might look at what’s going on in the clean energy economy, in a lot of areas and be encouraged by the fact that the trend is positive. We are making a transition to a clean energy electricity grid.

It is encouraging to see developments on electric vehicles. Some other sectors are moving more slowly. Some nations are doing better than other nations, but overall, the pace of progress is simply too slow. And if we don’t pick it up, we’re going to lose. So the direction of travel is we’re not indifferent to pace.

It’s all about pace, pace, pace going forward. And we unfortunately are in the position where we have to optimize every single part of the system to make it work. And so if I’m, if believing that makes me an activist, I’m happy to have that label.

Denise: Thank you very much. Thanks Paul. It was a pleasure to have you on the show.

Paul: Thanks so much for having me. xx

Denise: Thanks a lot to Paul for coming on the show. You can find him on Twitter @bodnarclimate. To find the link to the climate aligned finance report and other resources, please go to the episode page at climatenarratives.co.

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Many thanks to Valentine Scherer and Victoria Yates for their help producing this episode, and to Lucas Laufen for the theme music.