Climate Action 2010-2011

Finance and Markets
Figure 1: New investment in sustainable energy, 2002-2008.
Source: New Energy Finance
of the revolutionary transition of energy systems towards
lower carbon-intensity and higher energy-efficiency.
Increasing private financial flows at the needed scale
will require financial practitioners of all types to shift
perceptions regarding the attractiveness of sustainable
energy technologies, projects and companies, and it
is unlikely that a shift of this size will come entirely
from philanthropic and corporate social responsibility
(CSR) motivations. The financial services sector is
a heterogeneous group of institutions, mindsets and
procedures. But fundamental changes in the way capital
is reallocated to technologies, companies and projects – at
the scale required – will have to be triggered by one of
two variables that essentially drive mainstream financial
decision-making, namely risk and return.
• Over 70 per cent of total investment in sustainable
energy to date has been financed by third-party entities,
meaning external investors and lenders which include
financial services sector, the capital markets and thirdparty
investors such as venture capitalists (see Figure 1).
The availability of sufficient, appropriate financial
resources at the needed scale and in the right place will
be key. As the overwhelming majority of these resources
will only be available from private as well as third-party
sources, it becomes clear that not only a revolution in the
energy sector is needed. A parallel revolution is needed in
the way the world’s financial markets allocate capital to
energy-supply and demand: bankers, investors, financial
analysts, and fund managers will have to be at the heart
Increasing private financial
flows at the needed scale will
require financial practitioners
of all types to shift perceptions
regarding the attractiveness of
sustainable energy technologies,
projects and companies.
Financial return and risk are not stand-alone
categories however: lenders and investors want to make
a return proportional to the level of risk they undertake.
Sustainable energy investment will hence become more
likely and frequent if perceived levels of risk are reduced
for a given level of return, or returns are increased for any
given level of risk. The growth throughout the last decade
of sustainable energy investment has been triggered
Figure 2: Global transactions in sustainable energy, 2008, US$ billion, per source of finance.
www.climateactionprogramme.org | 105 |