Tackling climate change and transitioning to clean energy are the greatest economic challenges and opportunities in today’s investor climate. This was the agenda when more than 500 global financial leaders gathered at the United Nations in January to discuss the growing urgency of climate change and investor actions that are needed to mitigate escalating economic risks.
Cost competitive renewable technologies and investment opportunities exist now but clean energy deployment is not at the scale needed to put a dent in climate change.
It is possible to close the investment gap by first, bringing capital costs down for clean energy projects and second, more properly pricing fossil fuel capital costs which are artificially low.
The investors at the Summit expressed agreement on the urgency for boosting investments in low-carbon technologies by an additional $1 trillion per year in order to limit global warming to two degrees.
The Summit was organised by US low-carbon business group Ceres, which runs a network of investors worth $12 trillion. The group also presented a Clean Trillion paper during the event with 10 recommendations for investors, companies and policy-makers to scale up clean energy investments to US$500 billion per year by 2020 and US$1 trillion per year by 2030.
“Quite simply, there’s a huge clean energy investment gap,” said Jack Ehnes, CEO of the California State Teachers’ Retirement System (CalSTRS), US’ second largest public pension fund managing $146 billion in assets. “Meeting the US$1 trillion a year goal will be a challenge, but it is where we need to be in order to protect and grow our portfolios and to ensure the long- term sustainability of our planet.”
Risks for inaction
While acknowledging the barriers in investing an additional US$36 trillion in clean energy between now and 2050 – the levels the International Energy Agency has called for to limit global warming – Ceres also focused on the opportunities associated with clean energy investments and the risks posed to institutional investors’ portfolios by not taking action.
“Cost competitive renewable technologies and attractive investment opportunities exist right now, but we’re still not seeing clean energy deployment at the scale we need to put a dent in climate change,” noted Ceres president Mindy Lubber. “Companies and investors must support the adoption of the necessary policies that that will open the floodgates for investment capital from all asset classes to flow into clean energy.”
The summit will be followed by UN Secretary-General’s Climate Summit in September, where he will seek to raise ambition, including among business and investors, towards a new universal agreement on climate change by 2015. As such, Christiana Figueres, executive secretary of the United Nations Framework Convention on Climate Change, urged the investors to continue seeking opportunities to invest profitably in clean energy solutions and support the international climate process.
She argued for smart policies, creative incentives and innovative financial instruments by governments all around the world. Additionally, investors need certainty, a phasing out of fossil fuel subsidies in order to level the playing field and full disclosure of companies “carbon footprints” in order to make informed decisions.
The data released at the summit by Bloomberg New Energy Finance showed that global clean energy investment was US$254 billion in 2013, a 11% drop from the revised US$286 billion in 2012. The reason for this drop was the decline in cost of photovoltaic systems and impacts on investor confidence due to policy shifts regarding renewable power in Europe and the US.
But on a positive note, investment in clean energy via the public markets more than doubled as rising share prices restored some confidence in the shares of solar and wind manufacturers. Investors, at the Summit, also showed enthusiasm about new areas such as electric vehicles and renewable power project funds.
“Despite the drop in global investments in 2013, it is possible to close the investment gap by first, bringing capital costs down for clean energy projects and second, more properly pricing fossil fuel capital costs which are artificially low,” concluded Mark Fulton, senior fellow for Ceres who authored the Ceres paper,Investing in the Clean Trillion: Closing the Clean Energy Investment Gap.
References – www.ceres.org