We hear from Tomonori Sudo, Professor of Ritsumeikan Asia Pacific University, about how to attract finance to projects aimed at tackling the climate crisis.

Key climate issues

The mobilization of finance is critical in addressing challenges associated with climate change.

Finance is needed to implement low-carbon energy development projects to mitigate against the climate crisis worsening.

Finance also plays an important role in adapting to climate change. The majority of projects addressing climate change will not generate a profit for private sector organisations, so many are hesitant to invest in them. But without investment into these projects, the risk of financial loss is very real.

Attracting finance is essential for effective action against climate change.

The idea

We need to find a way to encourage all investors and financial institutions (both within the private and public sectors) to include climate risk analysis within their appraisal and due diligence processes.

Financial institutions consistently underestimate the risks associated with climate change on their businesses, and the value of the environment as an asset. As a result, there is no mandate to incorporate climate risks and environmental value into appraisal and due diligence procedure.

I propose a new form of environmental appraisal.

If all investors and financial institutions included climate risk analysis within their appraisal and due diligence processes, they could start to estimate the financial cost of failing to invest in climate action. So, even though an investment into an individual project may seem profitable in the short-term, the long-term financial cost will be too great.  They will be unable to justify the investment into such short-sighted projects.

The importance of financial institutions investing responsibly is critical. However, it will require financial institutions around the globe to work together; no single institution can action it alone.


About the author

I am Tomonori Sudo, Professor of Ritsumeikan Asia Pacific University, and I’m conducting research on Climate Finance. Before joining the university, I worked for Japan International Cooperation Agency (JICA), an executing agency of Japan’s Official Development Assistance. At JICA, I was in charge of climate related issues including screening projects from climate lens, developing climate related projects, and participating in negotiations at COPs.