Mind the gap

What is sustainable finance?

It's a subset of finance that deals with directing flows of capital to things that improve sustainability, either by investing in them directly, or by raising capital through the issuance of equity or debt.

At COP29 this past November, participants pledged to provide at least US$300 billion a year to help poor countries cope with climate change. That's encouraging. But according to a 2023 report by McKinsey, the world needs to spend US $9.2 trillion to achieve net-zero emissions by 2050. How big an obstacle is this "finance gap" ?

The number changes as the climate changes. So, depending on whether we're looking at 1.5 degrees of warming, or two degrees, or three degrees or even worse, the climate phenomena change. They become more severe, more linked, and more frequent.

To adapt our economy and infrastructure in these more extreme scenarios is way more costly than in a lower-warming scenario. The increase in temperature we are seeing puts us on track to a three-degree increase, so the cost will probably be even higher.

What should cities be investing in?

I'm French, and France has many climate change initiatives. Cities and towns are trying to switch to renewable electricity. That requires shifting from reliance on the grid to using smaller, more localized sources of electricity.

In my little town in the south of France, they put solar panels everywhere, including supermarket parking lots. With just that, you can actually power almost the entire little township. One of the challenges with renewables is that you have to store the energy when you're not using it. That's a big challenge. Most of the time you have to rely on the grid to manage the distribution of power. But when you do that, you also have a lot of wasted energy. So, solutions that localize energy production at a smaller scale, and solutions that allow you to store the energy are very important to moving toward self-reliance.

Then there's water recycling and distribution. In Asia and elsewhere, water pipes leak because they're old. So this huge problem – inadequate access to water – is being compounded by climate change, and then compounded even further by society’s growing need for water in industry and agriculture. Cities should be investing in solutions related to treating water and saving it.

What about the overall built environment? What would be the best investments there?

Well, Paris has created more green space. There’s vegetation on the rooftops. They work to create cooling spaces. Rising temperatures in cities are affecting human health and city infrastructure, and we have to deal with that.

A few years ago, the French government gave people tax deductions for putting solar panels on their roofs and connecting the panels to the power grid. So, homeowners get both a tax break and a lower monthly utility bill, while the power grid gets an additional dose of solar-generated power.

Is this something we're more likely to see in developed markets?

Not at all. In Mongolia, people are nomadic, and they've developed small solar panels you can carry with you from place to place. This is something we can all learn from: rather than relying solely on big power plants, we can decentralize and localize. The cost is not that high.

What about the issue of transmitting solar power from one location to another? Isn't power lost in transmission, just as water is lost from leaky pipes?

Some power is lost, but it's still worth it. Singapore just approved the construction of an undersea cable that will let allow it to import solar power generated in Australia. The pipeline is 4,300 kilometers long. That's still in the early planning stages, but the governments and private companies involved say they're confident that the project is viable. 

Do countries need to allocate funds for upgrading the power grid so it can use more renewable power?

Absolutely. For example, the grid in the U.S. is totally antiquated. It has been under-invested for decades. Many renewable energy projects funded by the Inflation Reduction Act [major climate change legislation passed by the U.S. Congress in 2022] can't connect to the grid because there isn't enough capacity.

If you could wave a magic wand and channel investment into the key areas that will lead to zero-carbon cities, what would those areas be?

It depends on the country. Some countries have already made massive progress in renewable production. But I would focus on water. With climate change, water is becoming scarce, and we're going to start seeing competition for it: drinking water, water for agriculture and industry, for cooling data centers – and, of course, for producing electricity.

In China, the largest renewable energy source is hydro-electricity: electricity generated from water power. That's great, because hydro is a great source of low-carbon power.

But if water levels in rivers go down, the electricity production of dams will drop as well. That will force China and other countries to rely more on high-carbon power sources, such as coal. We should avoid that outcome if possible.