Funding the Energy Transition

Hastening the energy transition requires a holistic view of the economy and stronger collaboration and coordination across industries to build more momentum toward a net-zero economy. Those were some of the main takeaways from the Green and Clean: Redefining Finance for a Sustainable Future panel at the International Economic Forum of the Americas Conference in Montreal 2023.

The panel, moderated by Mathieu Dion, Montreal Bureau Chief, Bloomberg, addressed the question of how the estimated US$194 trillion needed to finance the energy transition should be raised and deployed. Grégoire Baillargeon, President of BMO Financial Group, Quebec, Matthew Chamberlain, CEO of London Metal Exchange (LME), and Lori Kerr, CEO at FinDev Canada, discussed how those funds could be put to work, even as trillions continue to be spent on fossil fuel exploration and production.

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Grégoire Baillargeon said the market needs to remember that we’re in the middle of a transition to net zero, noting that the market has a habit of looking for potential faults in solutions. But this can stifle progress. “Perfectionism gets in the way of momentum, and to me, that is the most worrying piece,” he said. “We cannot put all the capital on low-carbon solutions. We need to put a lot of capital towards decarbonizing the sectors that need it.”

Companies can get discouraged because they’re not seeing change happen fast enough, but there are some great initiatives out there, he explained. Momentum, he added, can be a powerful tool. “We are sometimes surprised to see how much progress we make,” he said.

“We do finance the oil and gas industry, and we don’t have any intention to stop that,” Baillargeon said. He noted that part of the role of a bank is to be a trusted partner to assist in a well-functioning economy and that banks can do the most good by bringing solutions to clients with carbon-heavy footprints, as well as cleantech innovators.

“We need to double renewable energy, we need to triple energy efficiency, to help make that transition, but we also have to make sure that’s just part of a transition,” he said, noting that it’s equally important for the Canadian economy to support the transition away from oil and gas.

“We’re pragmatic, we’re solutions finders and we will work towards transition,” he said. Our Climate Ambition is to be our clients’ lead partner in the transition to a net-zero world, which is why we launched the BMO Climate Institute and acquired BMO Radicle.

“Banks create markets for commodities, so we now have the tools to create a market around carbon to try and get it properly factored in,” explained Baillargeon.

Chamberlain said LME began to take a broader view of its own environmental, social and governance (ESG) responsibilities when the possibility of child labour violations within the cobalt supply chain was raised in media reports in 2017. “It’s not good enough to just say that you’re not doing anything bad. It’s about how can you be part of that positive solution?” he said, another aspect of which is facilitating the development of critical mineral resources. “We’re going to need huge amounts of these commodities for the green transition,” he noted.

Chamberlain credited the European Union’s “hugely ambitious” work on sustainable taxonomy for taking on the challenge of classifying and grading sustainable business activities in six key categories and developing a scoring system for investors. “I really hope that the momentum continues behind that,” he said.

Lori Kerr from FinDev, a federal agency that helps fund green investments in developing countries, noted it was important that the energy transition is a just one, where there are new opportunities for families and communities currently dependent on fossil fuels for their livelihoods. She also warned against ignoring the 675 million people without access to electricity in the transition conversation and their opportunity to leapfrog straight to distributed, renewable energy.

The panellists agreed that multiple approaches to decarbonization – “everything, everywhere, all at once,” in the words of UN Secretary-General António Guterres – should be encouraged, for example, carbon taxes in some jurisdictions and carbon credits in others, regulations as well as incentives. Having invested in a carbon credit trading platform, BMO Radicle, Baillargeon said, “We are not saying people should offset instead of reduce; all corporations, all individuals, everyone should try to reduce their carbon footprint to the maximum extent.”

When asked what he thought the chances, on a scale of one to 10, were that global carbon neutrality could be achieved by 2050, Baillargeon answered 10. “I don’t think it’s a choice. It’s an imperative,” he reasoned.

“The most important part of all of this, to me, is a thriving economy,” he added. Finding solutions requires innovation and risk-taking that is enabled by growth and profits and may be hampered by current factors such as inflation and high interest rates. One of his biggest concerns right now is the economic cycle could slow all these efforts.

Still, Baillargeon said the global coordinated effort to fight COVID-19 gives him hope that the global economy will resolve its climate challenges. “It’s all about collaboration. We need industries to get together,” he said. “We need to compete where competition is actually going to drive innovation faster, and we need to collaborate when sharing knowledge: we don't have time to wait.”