Red Skies, Climate Change, and Sustainable Finance

By Hubert Yoshida posted 09-23-2020 16:55


California Wildfires Create Red Sky over Gate Bridge at 11:00 am September 9, 2020

On September 9, I woke up to an eerie sight. My bedroom was awash in an orange hue. When I looked out the window, I saw a red fog shrouding everything outside. It was also very quiet. No birds were singing and the dogs were silent as I let them out to get the morning paper. The explanation was that the smoke particles from all the wildfires that were raging across California and most of the west coast was only allowing the sun’s longer wavelength colors like red and orange to penetrate the atmosphere. We have all seen the occasional red sky at sunset or sunrise, but I had never seen the sky stay red all day for several days. Something has changed in the environment.

The Governor of California, Gavin Newsom, believes that the wildfires in California are getting worse due to climate change, and there are many who support that view. In Europe, the European Union, has been leading the fight against climate change. The European Union is strongly supporting the transition to a low-carbon, more resource-efficient and sustainable economy and it has been at the forefront of efforts to build a financial system that supports sustainable growth. In 2015, landmark international agreements were concluded with the adoption of the UN 2030 agenda and sustainable development goals and the Paris climate agreement. The Paris climate agreement, in particular, includes the commitment to align financial flows with a pathway towards low-carbon and climate-resilient development.

On 11 December 2019, the Commission presented the European Green Deal, a growth strategy aiming to make Europe the first climate neutral continent by 2050. As part of the Green Deal, the Commission presented on 14 January 2020 the European green deal investment plan, which will mobilize at least €1 trillion of sustainable investments over the next decade. It will enable a framework to facilitate public and private investments needed for the transition to a climate-neutral, green, competitive and inclusive economy. Reaching the current 2030 climate and energy targets alone would already require additional investments of approximately €260 billion a year by 2030.

To this end, the Commission has developed a comprehensive policy agenda on sustainable finance since 2018, comprising the action plan on financing sustainable growth and the development of a rebewed sustainable finance strategy in the framework of the European Green Deal. The Commission is also coordinating international efforts through its international platform on sustainable finance. 

Sustainable finance is defined by experts, as any form of financial service which integrates environmental, social or governance (ESG) criteria into business or investment decisions. This is more easily said than done. There are many inefficiencies that currently hamper investment in sustainable projects. Sustainability metrics need to be clearly defined to ensure that opportunities are economically feasible. Risk assessment, transparency, industry cross-cutting initiatives, standardization, are needed to reduce transaction costs and attract capital that would not otherwise be available.

Hitachi Ltd has long been guided by Social Innovation and focused on a double bottom which drives advancement in our business and also advancements in society as a whole. So it was natural for Hitachi Consulting, now a part of Hitachi Vantara, to announce last year, the launch of a global digital platform to accelerate sustainable financing.

The platform, which uses blockchain, the internet of things (IoT) and artificial intelligence (AI), will address inefficiencies currently hampering investment in sustainable projects. The investment community, insurers and government institutions will use the platform for reporting and analytics, drawing together currently fragmented information.

The sustainable finance platform aims to connect Hitachi’s digital technologies and experience in the decarbonization of the energy and transportation sectors with the financial sector to accelerate investments that promote sustainability. Hitachi brings together the experience and scale in manufacturing, infrastructure, digital technologies and financial know-how to support this platform on a global scale. The diverse participants can benefit from:
  •  Efficient Reporting: Reduce the time and cost associated with the measurement, reporting and verification (MRV) of impacts using standardized metrics.
  • Enhanced Decision-Making: Compare the impacts of financial assets to support the investment decision-making process and facilitate the visualization of the desired granularity depending on the stakeholder.
  • Transparency and Security: Increase the transparency and visibility of evidenced social, environmental and economic impacts achieved by the traceable allocation of proceeds, and securely share information solely to relevant stakeholders.
  • Aggregation: Facilitate the aggregation and reduction of risks of eligible projects into structured financial instruments such as green bonds.

Hitachi’s European Research & Development Centre in London identified the multiple societal issues and Hitachi’s technologies to deliver the solution. With support from Hitachi’s Research & Development teams globally, and by implementing socio-technical approaches, a prototype of the platform technology was developed. It was presented for the first time in public at the Innovate Finance Global Summit in London this April (2019) and received positive technical and use-case feedback.

Hitachi Consulting will carry out an ecosystem proof of value (PoV) with “forward-thinking” representatives of each type of stakeholder involved in sustainable finance. Through the ecosystem PoV, Hitachi can then launch the solution supporting the creation of this new platform and marketplace. Subsequent expansion of this solution is primarily across project categories (energy, water, transportation and urban categories) – with stakeholders including subject matter experts and retail investors – and financial instruments, including private equity.

Because Hitachi does substantial business in sustainable products, solutions and services for energy, water, transportation and urban infrastructure, Hitachi Europe joined the International Organization for Standardization Technical Committee for Sustainable Finance (ISO/TC 322), to represent the industry perspective in the building of a sustainable society by participating globally in the standardization activities that incorporate the necessary technical capabilities regarding the frequency, security and completeness of measured, reported and verifiable impacts.