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Lindsey Hall: Hi. I'm Lindsey Hall, Head of Thought Leadership at S&P Global Sustainable1.

Esther Whieldon: And I'm Esther Whieldon, a Senior Writer on the Sustainable1 Thought Leadership Team.

Lindsey Hall: Welcome to ESG Insider, an S&P Global podcast, where Esther and I take you inside the environmental, social, and governance issues that are shaping the rapidly evolving sustainability landscape.

Esther Whieldon: In recent episodes of this podcast, we've been covering some of the big outcomes from COP29, the UN's Climate Change Conference in Baku, Azerbaijan. This was known as the Finance COP. And today, we're back with another bonus episode looking at how climate finance has changed over time.

Lindsey Hall:  We're going to do that in an interview with a guest who has unique insight into how the sustainable finance landscape has evolved over the years, Sean Kidney. Sean is the CEO of the Climate Bonds Initiative. That's a nonprofit that works to mobilize global capital for climate action, and it does this in a couple of ways.

For example, by reporting on how the market for green bonds and climate bonds is evolving and on green infrastructure pipelines, by developing a labeling system for bonds known as the Climate Bond Standard and by developing policy proposals for government, finance and industry.

Esther Whieldon: As a quick primer, green bonds and climate bonds are sustainable debt instruments that issuers such as companies, municipal governments and multilateral institutions like the World Bank use to finance or refinance new or existing projects that contribute positively to the environment or climate. And as we'll hear in today's episode, the green and climate bond market has grown significantly.

Lindsey Hall: So Sean was extremely active in Baku. By the time I sat down with him on the sidelines of COP29 toward the end of Week 2, he told me he'd already done more than 20 talks. Here's my conversation with him, where he starts off by talking about how his work has changed over the years.

Sean Kidney: So I'm Sean Kidney. I'm the CEO of the Climate Bonds Initiative. Our mission is to mobilize global capital for climate action. So we're trying to educate investors about the nature of the risk they face and also show them about the nature of opportunities that will support change and ensure they can pay their pension recipients in future years. To do that, we need to identify the universe. That's been a big part of our work the last 20 years.

We need to grow instruments to make it easier for investors to invest and recognize that's what green bonds are and the variations of that climate bonds resilience both blue bonds draw a subset of the idea. We've been the NGO for that market ever since it began. When I started, it was $2 billion outstanding from 2 development banks. I have proof of concept. We're now at $5.5 trillion outstanding as a growth path. We've taken the guidance, which I have to say was resisted by the banking community initially.

They don't like rules, but we said, rules will drive confidence amongst investors and it's work. That guidance has now become regulatory instrument by the People's Bank of China, who accepted my recommendations in a task force in 2014 and then the European Commission who again accepted recommendations I wrote in 2017 to create taxonomies of sustainable finance, which underpin disclosure arrangements, green bond markets and so on.

And now we've got 60 countries in the world with taxonomy programs that are regulated, which is guidance to the sector. All everyone thinks are different, but actually we're all broadly aligned. And on the back of that, we've got something happening, which is the real aim of all this, which is the shift to real economy by suggesting that finance actually is available.

We've changed the concept of investing in climate solutions from being a burden as it was when we started 15 years ago, everyone's saying, I'd love to do it, but it's -- I have to take a haircut. I can't do it. My credit wouldn't allow it, to now being a positive. Green bonds are worth more than the secondary market. They're worth more for investors.

They track tighter pricing, not for sentiment, but because of increased value, superior value retention in particular. And as a result, the idea of investing in green is now seen as a good thing, a plus thing. And that's had a spillover effect to all sorts of asset classes as well.

That's why the growth of the market, including sovereigns. We now have 50 governments around the world issuing sovereign and green bonds on one form or another. Those markets, those issuance programs keep growing. Their main problem is they can't find enough stuff at the moment to grow their programs fast enough, which is a fantastic tension to have in government.

And on the back of that, we've got governments being more aggressive, emboldened and enthusiastic about policy change than they might have been a few years ago. Hey, not everyone, right? But certainly, a number of key governments are moving really quickly. Look at the Japanese government that now has a JPY 1 trillion subsidy program for green transformation.

And they're financing that with a green bond program or a green -- they're calling it a climate transition bond program, but they're essentially green bonds. They're about meeting 1.5. And they've so far this year done $20 billion worth. It's a $140 billion issuance program. These are the sorts of things that are happening. It's very cool.

Lindsey Hall: Yes, I can hear your enthusiasm come through. And we're having this conversation, like I said, in Baku, on the ground at COP. Tell me about this one though. What does this one been like for you?

Sean Kidney: Well, I launched the Climate Bonds Initiative at the 2009 Copenhagen COP. When things got pretty grim, for a variety of reasons, I won't go into it. And I look now at the change of sentiment. I know the UN Secretary General and others are still slamming the table and saying the world is going to pot and they're right.

But most of the conversations I'm involved in with finance, with development banks, with governments are all about how to do it, not if, not even about ambition. Everyone understands the targets now. It's simply about let's get the engineering of it, the financial engineering, the policy engineering. I spoke to a friend of the water area who runs a global NGO for the water sector.

When I first talked to him more than 10 years ago, he was pushing hard to convince governments and others to do something. Now he's got 50 governments lined up who want to work with him on frameworks for water investment in countries to drill of resilience. A critically important role, but it's just taking off, and everywhere it's taking off.

Lindsey Hall: Can you take me behind the scenes in some of these conversations you've been having or some of these panels that you've been sitting on?

Sean Kidney: Sure. Well, look, I was moderating a panel the other day for the New Development Bank, the BRICS Bank, which includes Russia, on how we mobilize capital using blended finance mechanisms. And I had with me on the panel, we had a really exciting panel of practical things. The BRICS Bank has set up a private sector facility. I never used that to bring in private sector. I had Asian Infrastructure Development Bank.

I had Islamic Development Bank. I had the Development Bank of South Africa. And I had ACWA Power, which is now an $85 billion renewable energy company that's basically shedding its gas-fired power stations and they're planning to get rid of the balance sheet in 3 years with renewables, which is extraordinary. And they're now backed by the Saudi government as part of the Saudi going green story. It's very interesting. The development banks are talking about what they do.

These are not your normal development banks. This is not the IFC or the World Bank or the European Investment Bank. This is AIIB, NDB, Islamic Development Bank and DBSA. And it was really exciting. The nature of support mechanism are rolling out.

Everyone from the Asian Infrastructure Investment Bank providing a credit enhancement for Egypt to issue green bonds in the Chinese wine market so they can buy solar kit from China to build solar plants in Egypt, to the Islamic Development Bank starting to provide credit support for Islamic countries, which they hadn't done before, to DBSA's program of huge solar growth program in the last couple of years since the government changed an energy policy and so on.

I'm thinking more 6 years ago in COPs, this is all abstract. And now it's about tactical development or another one. I gave a speech at an event for the Azerbaijan Central Bank. The Azerbaijan Central Bank, this is a petrol state and the Central Bank has rolled out a taxonomy of sustainable finance, the guide for sustainable finance. They've got a sustainable finance roadmap.

They bring out green bonds and green loan guidelines and the government has committed to transition the economy. Well, when you dig it a little bit deeper, there's a story behind it. But the main thing was here I was on a panel with a whole lot of other senior people like the Deputy Head of UNDP and the like, talking about changing the global economy using taxonomies and Central Bank guidance with Azerbaijan and being one of the ones in the central.

And last month, the first green bond ever was issued in Azerbaijan, and it got a price benefit of 150 basis points. I was gobsmacked from local investors demand. And so everywhere it's happening.

Lindsey Hall: A quick interruption to note some of the acronyms we've been hearing from Sean. He mentioned DBSA, that's the Development Bank of Southern Africa. He also talked about the new Development Bank for BRICS. Brazil, Russia, India, China and South Africa are collectively known as BRICS countries, and the new Development Bank was established in 2015 to mobilize resources for infrastructure and sustainable development projects in these countries, along with other emerging market economies and developing countries.

UNDP is another one we heard, and that's the United Nations Development Programme. We recently featured Marcos Netto from UNDP as a guest, and we will include a link to that episode in our show notes. Lastly, you'll hear Sean talk about MDBs, and those are multilateral development banks. Okay, back to Sean.

Sean Kidney: Now the story of Azerbaijan, which is a story consists in lots of places, is that oil production is going down. They're not going to be in Aramco making money in 2050. They have to transition their economy. They're aware things are coming to an end. Well, things are coming to an end in lots of places for different reasons.

Saudi Arabia recognizes as the Minister for Oil set an OPEC meeting now 4 years ago, said that in 2050, Saudi needs to be and will be primarily a clean energy exporter. It will still export oil. It's not going to stop off its evolution, but demand is changing drastically in the world, and it is doing a massive build-out of renewables accordingly.

In fact, in the previous session, I mentioned MDB session, ACWA, the renewable energy company, is just finishing off an $8.5 billion green hydrogen plant in Northern Saudi Arabia, entirely for renewables hydrogen as part of that Saudi transition to create ammonia for fertilizer mainly and so on. So I've been on -- I've done 20 talks so far, at 22 talks this COP.

And I'm going to say all of them, not so much that it's new because the theory has been something we've been talking about, but it's real, it's practical and there's money moving. It's not about how to get money moving, it's about making it most efficiently, you got to get more money moving. It's a working COP.

Lindsey Hall: So you're describing this clear momentum and I think I'm hearing optimism.

Sean Kidney: Absolutely.

Lindsey Hall: Okay. And that's really interesting because before I arrived, I'm reading the headlines, and I didn't know what to expect. There was a lot of headlines in the U.S. about this election result has cast a pall over COP29. Are you seeing any of that?

Sean Kidney: So in the formal negotiations, I can't really comment. I'm not involved. I'm more involved in just how do we get deals going because investors want to move. Our stakeholder base is our institutional investors. And the appetite there is very strong. Next year will be more important because a lot of countries will be submitting ambitious nationally determined contributions, climate change plans to the COP, and we'll see what that takes.

We are working on bringing an investment pipeline to the next COP that is government showing off what it is that they're going to be doing in the coming 10 years pipeline for investor at scale, supported by development banks for risk reasons, so they can get a reasonable credit rating.

Lindsey Hall: Sean said that if the U.S. withdraws from the Paris Agreement on climate change, it's not going to derail what's happening in the world.

Sean Kidney: Because the global economy started changing. In every country I go with, the fruits of the last 20 years of action are now coming to bear. Solar is cheaper everywhere, frankly. Republican counties in the U.S. have stopped building gas-fired power stations. They're building solar plants just because they're cheaper, no other reason.

In a sense, that program, which was actually a state action by Germany, European countries and then China for massive commissioning of solar when it was expensive, which drove the price down, has got us a situation where solar is dirt cheap everywhere. Now the U.S. is unhappy that 95% of solar panels are made in China nowadays. It's a bummer for the U.S. It's a bummer for global trade dependencies, but you know what, its' fantastic for Africa. It's fantastic for Latin America. It's fantastic for Asia.

It is driving down the cost of power everywhere. We're entering a new era of cheap power, electric vehicles. Again, China is driving that change. 50% of all cars sold in China this year were electric so far. This is incredible. That, of course, has changed the dynamics of the oil industry, which is another reason for people like Azerbaijan to consider the transition because the IEA thinks that we're going to see a drop of demand in the 2030s because 40% of oil demand goes to cars.

And if new cars are shifting so quickly to becoming electric, that's going to rapidly eat away at the market for oil and so on, and so on. These changes are happening now. It's too late to stop. In every area we're working, change is underway. The only question now is the speed, the pace of change. Of course, that's a material issue because climate impacts are starting to happen very fast.

And we now have absolute certainty the next 30 years are going to see increasingly severe climate impacts because the emissions we put and the efforts in the last 30 years will keep affecting us for 30 years, immediately stop the emissions stone cold tomorrow morning. So we've got to prepare. That requires to have a bigger resilience agenda while we're continuing to fight to get emissions down to stop catastrophic change in the second half of the century.

You are seeing a lot of talk at this COP about resilience, especially in emerging markets, but not only. Southern USA is highly at risk. We saw this summer, wet bulb temperatures is called severe heat that people start dying in outdoors in Southern Texas and North Mexico. And this is going to become all too frequent. We saw crazy floods in Valencia, classic example of volatile weather as a result of climate impacts, and 200 people lost their lives in Valencia. Welcome to the new normal. Let's prepare.

Lindsey Hall: I should note here that the COP process is not without its critics. During COP29, for example, a group of former leaders and prominent climate experts signed an open letter calling for a fundamental reform of the COP process, which they said is no longer fit for purpose. The group wrote that "We need a shift from negotiation to implementation, enabling the COP to deliver on agreed commitments and ensure the urgent energy transition and phaseout of fossil energy."

And while I heard a bit of this criticism in my interviews, I also heard from many people about the value of these conferences. Here's Sean, one more time speaking to this point.

Sean Kidney: The COPs aren't just COPs of government negotiators, half of which are there in a bit of a boon dog on a trip to a nice country without anything material to offer, which is common to conferences, right? They're also a gathering of everyone working in the space each year. It's a logical conference. The science is amazing. Everywhere you go, the latest science is being presented and discussed by panels and groups and audiences and so on.

The financial developments are amazing everywhere you go. There's, I think, 1,000 different seminars going on over this 2-week period. And as a result, there are a lot of people. It's really hard to get into the COP to get a pass, to get a ticket. There are 30,000 passes given out, and there are about 60,000 applications each year. The 30,000 that get in as to how, why, that's a separate discussion. It's an amazing conference.

For those of us working in the space, we get to work out deals for next day to speed up things all the time. I have 15-minute meetings again and again and again all through the day. And it's very efficient, and you get a year's work done in 2 weeks. It's a bit like bees coming together in a hive. People are coming together. They're doing a lot of work, they're reenergizing, and then they're going out looking for pollen, and they'll come together in a year's time.

And for that reason, it's incredibly productive. Put aside the official track, getting 200 countries in the world to agree on anything like you have to say that's a quixotic adventure. It's amazing how much agreement we've got despite the ambition, and that will keep trending along.

But in the meantime, it's a framework and umbrella for the real work, which is people moving money, people supporting change, the scientists who are studying what it is that we really need to do, what works and what doesn't work and those of us who are looking to support them into government policy and so on. And this is what the COP is really about.

Lindsey Hall: So today, we heard from Sean that the market for green and climate bonds has expanded significantly. We heard about the dramatic shift in perception where investing in climate solutions is now seen as an opportunity. Sean said that governments are also becoming more engaged on the topic of sustainable finance as they seek to transition their economies.

Esther Whieldon: And we heard that despite some criticism of the COP process, there is value in these events beyond formal negotiations. Sean said COP serve as a crucial platform for stakeholders across sectors to collaborate, share knowledge and mobilize capital for climate action. Please stay tuned as we continue to track how different sectors are approaching climate change and the energy transition. We'll be back tomorrow with another year-end bonus episode where we speak to a leader from the U.S. Department of Energy.

Lindsey Hall: Thanks so much for listening to this episode of ESG Insider. If you like what you heard today, please subscribe, share and leave us a review wherever you get your podcast. 

Esther Whieldon: And a special thanks to our agency partner, The 199. See you next time.

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