OK, I'll give it to you straight -- we need at least four trillion dollars per year by 2030 to avert a climate crisis. And right now, that money simply isn't flowing at the rate we need to keep this planet habitable.
Now I work with a lot of banks and investors, and everyone who I talk to -- and I work with some of the leading ones around the world -- they get what needs to be done. They're aware of the climate risks and they're actually really excited about the unprecedented opportunities to finance the green economy of the future.
And here's the good news. Over 450 financial institutions around the world have committed to aligning their financing to net-zero by 2050. And collectively, these financial institutions manage over 130 trillion dollars.
OK, so we need trillions, we've got trillions. Problem solved, right? Shortest TED Talk ever.
(Laughter)
I wish that were the case. But now, as we're working to deliver on those commitments, it's actually proving to be really hard. Like, really hard to deploy real money into real technologies that will actually really decarbonize the world. And as a result, too much of that money, it's sitting on the sidelines, waiting to be put to work.
But I think we can change that. And it's not even what I think -- I know we can, because it's based on what banks and investors tell me about what they need to go fast and go far. And what they need is help from people like you and me.
So to bring this idea to life, let's zoom in on one part of the economy, one that we can all relate to -- it's close to home. Let's talk about housing. Because, believe it or not, the challenges we're facing with housing and the challenges we're facing with climate are inextricably linked, so as we solve for one, we can solve for the other.
You see, we're facing two concurrent challenges right now, with housing. On one hand, there's an affordability challenge. There's just a scarcity of homes that are affordable right now. Here in the United States, there's a scarcity of over seven million homes that people who live at or below the poverty line can afford to rent.
And the other affordability challenge is it's less affordable than ever before to live in one, because they're so energy-inefficient. These older, less energy-efficient homes tend to be in Black and <b>B</b>rown neighborhoods due to the structural nature of poverty. And get this -- a recent study found that the average renter who is Black pays over 250 dollars more per year in utility bills than one who is white.
OK, so we need to build a lot more affordable housing. Great. But that's when we run into the climate challenge, because the buildings that we live in are one of the leading contributors to the greenhouse gasses that are fueling climate change. And if we take a business-as-usual approach to just building all this housing, we'll only exacerbate the climate challenge. Think about the emissions from all that cement and steel and concrete that goes into a high-rise, for example.
So, a pretty sticky challenge. But that's why I love working in sustainable finance and investing, because we get to take challenges like this and transform them to opportunities, specifically financing opportunities. Opportunities to deploy debt, equity, grants by governments, investors and banks.
And in the housing sector, the financing opportunities are enormous. We recently did a study. We found over a trillion dollars' worth of things that banks can finance to lower the emissions associated with our housing.
OK, great, so what will it take? How can we actually get this done? Well, here's the catch. You see, banks work within prescribed risk thresholds, and some of the things we need most -- like replacements for that high-carbon cement, steel, concrete -- they're being developed by companies right now that are still relatively early-stage, and might not yet fit within those risk thresholds. Similarly, building affordable homes in a low-income community or a low-income country might not reach the return thresholds that investors are looking for.
When I talk to banks and investors, they say they need the right type of public policies, they need the right type of capital and they need demand in order to put this money to work. So that's where you and I can come in, because there are some simple moves that you and I can do that can help to create the conditions that will allow this money to flow.
I'm going to talk you through these different moves, and as I'm talking, just bear in mind, these moves are not exclusive to housing. We could apply this playbook in any sector where we need faster climate action. OK, let's dive in.
The first thing that we can do to really move these trillions of dollars is make the climate-housing connection matter to government. Governments have a huge role to play in climate finance. But when I talk to banks and investors, there's one particular form of government funding that they say would make a huge difference, and it's called blended or catalytic finance.
You see, the private sector, banks and investors, they have a lot of capital, but not necessarily always the right risk appetite. On the other hand, governments are willing to take some risks, especially for things like the climate or shelter equity, but they don't have as much capital. So what blended finance involves is governments deploying their finance in instruments like guarantees, or more concessional forms of lending, and this allows that private-sector finance to flow when the governments take on more of that risk. And this kind of blended or catalytic finance has proven to be tremendously effective in areas like affordable housing, where a little bit of government money can go a long way.
OK, great, so that's how we can get some money flowing, but there is more that we need from governments, and I call them the three p's: public policies, programs, permits. And to bring this to life, let me tell you a story of a bank that I'm working with. They have bold ambitions. They want to bring all the financing in line with net-zero targets by 2050, including their financing for homes. And as we worked to bring this ambition to life, we ran into three key challenges.
In a lot of the markets where they operate, the right public policies just weren't in place. Minimum energy-efficiency standards just didn't exist. Moreover, the programs to incentivize homeowners to put solar panels on their roof or retrofit their homes, the kind of thing that the bank was willing to finance, they just weren't available at sufficient scale. And finally, when the bank was looking for big-ticket things to finance, like entirely new housing developments that were affordable and low-emissions, they found that projects were held up in permitting. And so their good intentions remained stalled, and so did the money.
But that's where people like you and I can come in, we the voters and constituents, because we can demand that governments do this. We can demand that they put in place that financing, those programs, those permits. And look, I get it. Right now, it's a little bit of a complicated time for many countries, at the national level, around climate-change policy. But the exciting thing about housing is a lot of the changes that we need are superlocal ... where small numbers of voters can actually make a huge difference.
So let's do this. Let's put climate and, importantly, actions that drive climate finance, at the top of the agenda for every local government. Let's write to our local officials and say "Look, the banks and investors, they're ready to put money to work. And if we can just put in place the right policies, programs, permits, that money can come to our community." Let's back the candidates that back climate action and, importantly, let's show up to vote.
OK, that's the first move -- we can mobilize governments. But if we want to mobilize big money, we also have to look at the big balance sheets. So here's the second move. If you have an insurance policy or a pension, this one's for you.
You see, pension plans, insurance companies, they're managing huge balance sheets. They're often referred to as institutional investors. And these institutional investors, they're managing your money for the long run. And the good news is that in recent years, they have increasingly begun to appreciate that the long-term risks associated with climate change present a material risk to their ability to manage your money. And so they've started taking action to manage those climate risks.
Well, thanks to the pandemic and the recent focus on racial equity, they're now appreciating that social inequities also create these long-term financial risks, and they're ready to step up and take action. Here's some good news -- in 2020, investors financed over 140 billion dollars' worth of social bonds. That's up from 17 billion just the year before. What are social bonds? They’re bonds [where] proceeds can be used towards addressing social inequities, including things like affordable housing.
So when I talk to these investors and ask them, "OK, you're doing billions, that's great, but what would it take to get to trillions?" they say it all comes down to having a mandate, a mandate to better integrate these environmental or social considerations into how they manage your money, the mandate to actually put the money to work.
So how can we give them that mandate? Well, there's two ways. One is insurance companies and pension plans are increasingly giving you options to move your money from a general pool into a more dedicated one that manages money with greater environmental and social considerations in mind. And if you don't have that option, demand it. Large pension plans, insurance companies, they have teams whose job it is to listen to your concerns. I know, because that was one of my first jobs out of college, to just answer phones for a large pension plan in Canada. And the more we speak up and influence these large investors who are managing our money and make clear how we want them to consider environmental and social causes, the more of a mandate they will have to put those trillions to work.
OK, so first move is governments, second is the institutional investors. The third move is ourselves. We need to create the demand for these greener solutions. Let me give you a few examples.
You know, most banks, they'll offer a discount for your mortgage if it meets minimum energy-efficiency standards. But guess what? Few people take them up on that offer. Similarly, I worked for a large real-estate investment company. They were willing to do the right thing, to retrofit their buildings and build entirely new ones with new materials that would make it a low-carbon building altogether. But you know what they told me? Aside from a few markets in Europe, they just weren't seeing the demand.
So I think we can take some inspiration from the other aspects of our lives, like the food we eat or the vehicles we drive, where we have shown banks and investors that it's worth financing alternatives to meat, or electric vehicles. Let's bring that shift now into the homes in which we live, and let's show them that it's worth financing more energy-efficient, lower-carbon homes. So when you're out to buy or rent your next home, ask about energy efficiency, and even better, ask about the overall carbon footprint.
So there are three things we can do. We can activate governments. We can mobilize these large, institutional investors. We can create the demand ourselves.
You know, as anyone in finance would hate to admit it, money doesn't make the world go around. This big, beautiful blue and green planet that we live on, it's been spinning on its axis for long before we were here and will continue to do so for long after we've gone. What money can do is influence just how long we'll be here to enjoy the ride.
Thank you very much.
(Cheers and applause)
