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Speeches & Transcripts June 29, 2016

Treasury Climate Action Seminar Opening Remarks

Good morning. I am delighted to welcome our colleagues from Climate Change, the private sector and academia to join us this morning. It is my intention to use our townhall as a format to build collaboration across the institution on key topics of importance, like Climate Action.  

We are living in a time of extraordinary climate change. The numbers are unsettling.

The combined average temperature over global land and ocean surfaces for May 2016 was the highest for the month of May in the 137-year period of record. It also marked the 13th consecutive month that a monthly global temperature record has been broken—the longest such streak since global temperature record keeping began in 1880. 

Earth’s 2015 surface temperatures were also the warmest on record [also starting in 1880], according to independent analyses by NASA and the National Oceanic and Atmospheric Administration (NOAA).  

Fourteen of the hottest years on record have all come in the last 15 years 

Climate change will affect all of us in one way or another, but it is the poorest that are the most exposed and least able to cope with and recover from climate shocks.  

Despite the efforts being made to improve growth and deal with the impacts of climate change, the world remains very fragile. Our interconnectedness also implores us to act.  

This is why we are here. And I am pleased to present this morning’s program. To start us off: 

Dr. Nathan Hultman, from the University of Maryland will outline the key aspects of the Paris Agreement in the context of the global climate agenda, the implications for the near future, and the underlying opportunities and challenges for climate finance. 

Next, I am delighted that my fellow Vice President, Laura Tuck, has joined us to then provide a brief overview of the WBG’s Climate Action Plan which the Bank unveiled in April, and contains a number of ambitious targets to accelerate efforts to tackle climate change over the next five years.  

These two addresses will be followed by a panel discussion in which partners from the private sector, Treasury and IFC will present financial instruments and related tools and services that address climate change in the context of the WBG’s Climate Action Plan and the Paris Agreement. 

Following the panel, we will have ample time for Q&A.  

Finally, our colleague Neeraj Prasad, from Climate Change, will sum up our discussions and close the session.  

I cannot stress enough how important our actions are and how critical partnership and dialogue will be in achieving these goals.

As President Kim said when he spent the morning with us during our townhall in March, Treasury has a key role to play in innovation and mobilizing the private sector to solve critical global challenges.  

Before we move on, I thought it would be useful for Treasury staff working in various areas and our colleagues with us today to recap some of the ways the World Bank Treasury is putting its market expertise and financial experience to work to find innovative financial solutions to climate change both in terms of mitigation and adaptation.  

It’s no news that we’ve been a pioneer in the green bond market along with IFC. Since 2008 our global issuances have paved the way for the development of the market. The Bank has also pioneered efforts to harmonize reporting on the impact of green bonds by other multilateral institutions as an important tool for investors to evaluate the nonfinancial benefits of their investments.  

Since 2008, IBRD has issued close to $9 billion in green bonds in nearly 20 currencies through a variety of structures. World Bank green bonds have supported [82] climate-related projects in [26] member countries, where they have increased energy efficiency and helped develop renewable energy. But we need to do more than raise funds to tackle this challenge. 

Treasury is also working closing with colleagues across the Bank in the Disaster Risk Management practice to help member countries finance disaster relief and recovery. 

The Catastrophe Deferred Drawdown Option or Cat DDO which most of you are familiar with provides immediate liquidity to middle-income countries following a natural disaster or a predefined weather-related event. Since the product was first offered in 2008, Treasury has helped arrange 12 Cat DDOs globally. Most recently, this included a second Cat-DDO for the Philippines for $500m. After helping to arrange a Cat DDO in Seychelles, I am proud to say that we are again working with a small state – this time with Cape Verde. 

IBRD intermediation services are helping countries mitigate exposure to extreme weather conditions by transferring risk to the markets through weather derivatives, for example.  

In 2013, we executed a $450 million weather and oil hedge on behalf of Uruguay’s state owned hydropower company to protect against high oil prices should a drought hamper hydroelectric production forcing the utility company to buy imported oil to generate power.  

At the moment we are cooperating with the Energy Global Practice on a very similar weather derivative transaction for Panama. 

Mexico was the first country to issue a multi-peril multi-region cat bond using the Bank’s MultiCat program, which was established in 2008. The Bank is also providing risk pooing for countries in the Caribbean and the Pacific for which Treasury is structuring and executing the underlying cat bond or hedge.  

Other ongoing initiatives include support to Latin American countries in the Pacific Alliance on structuring a cat bond that would provide less costly, shared coverage against natural disasters.  

We also recognize the importance of supporting cities and growing urban populations to reduce fragility in the face of climate change. In the Philippines Treasury is supporting local governments units in developing insurance programs.  

We are also working with the Rockefeller Foundation on developing disaster risk insurance at the municipal level that would allow cities to transfer disaster risk to the markets as part of the 100 Resilient Cities initiative.  

Treasury collaborated extensively with colleagues (maybe some of you here on this room or streaming the event at your desks) in Climate Change, Urban and Energy teams on the Colombo Green Growth Program focused on mitigation efforts in Sri Lanka. Here we added value by translating the environmental benefits of green programs into financial terms that would ultimately support sustainable growth for country counterparts.   

Overall, the Bank has played an important role in developing the insurance-linked securities market for disaster risk prevention and transfer by executing 18 transactions worth $1.4bn in risk coverage to date for clients.  

We are also working with the Climate Change and Energy teams and IFC on mitigation initiatives which include developing the new generation of carbon markets through the Partnership for Market Readiness in which the Bank is helping to build markets at the regional and national levels to support emissions reductions.  

To further incentivize climate change mitigation, we announced just two days ago [Monday, June 27, 2016] the issue of a second series of Pilot Auction Facility Emission reduction Notes [zero coupon note that will pay the noteholder $3.50 per unit. These notes pay bondholders a guaranteed price per ton of eligible certified emission reductions that are delivered at maturity.

The Pilot Auction Facility or PAF is a relatively new and innovative way to finance projects that reduce methane gas emissions by allocating carbon credit price guarantees to the winning bidders. [The first auction in was in July 2015 [$2.40 per ton] focused on methane-reduction projects at landfills, agriculture and wastewater sites. Most of the eligible projects are in Brazil, India, Indonesia, Malaysia, Mexico and Thailand, managed by both large and small companies.] 

Finally, we all understand that a failure to consider infrastructure investment in the Bank Group’s response to climate change would be short sighted. In our collaboration with Bank partners like the Energy GP, I want to add that we are actively looking at new financial structures to support infrastructure investment [including those that could help link up banks that want to lend, but do not want to commit long-term, with capital markets investors with an appetite for operating projects in order to get projects off the ground]. 

I am sure that the panel will have much more to say on our collective efforts and potential points of further collaboration.  

Before I hand over to Axel let me add a few personal words on the issue. Al-Gore, who “used to be the next president of the United States,” famously said that addressing climate change is a "moral issue". I share this view. We would probably all agree that since climate change most affects the most poor, tacking it is indeed a moral issue both for development institutions and individuals alike.  

I hope the discussion today inspires you to think bigger and broader about how Treasury can take action and continue good cooperation, but I would also like to encourage all of you, as individuals, to think of ways in which you can contribute to the health of our planet.  

Today, I am asking Treasury’s management team and staff to come up with concrete actions starting in the new fiscal year that we as global citizens and individuals can do to reduce, reuse and conserve to kick off a year of climate action. Indeed we already have a few ideas for a competition among departments.  

As Warren Buffet said: “Someone’s sitting in the shade today because someone else planted a tree a long time ago.”  Let us all collectively maintain the shade for our future generations. Thank you.   

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