11 months ago

Climate Action 2010-2011

Finance and Markets

Finance and Markets Private sector is paramount It is a simple truth that applies as much for clean energy as it does for industrial development more broadly: the private sector is the world’s main source of technology, financial flows and investment. For example, the private sector is responsible for 85 per cent of energy investment. Business, is the main partner for governments in building a low carbon future. In developing countries, private sector investment in clean energy in 2009 was treble that of public finance. While estimates of investment needs for mitigation vary substantially, one authoritative assessment by the International Energy Agency (IEA) estimates that we must invest US$2 trillion a year to keep global temperature increases within ‘safe’ limits. Most of this funding must be generated nationally. What is more, the UN Framework Convention on Climate Change (UNFCCC) estimates 86 per cent of this money will come from private sector flows in the form of foreign direct investment by companies. The private sector is an important part of the solution. Picking up the pace Although no comprehensive accounting exists that tallies global investment in green growth, it is clear that we are falling far short of the US$2 trillion investment needed per year. To accelerate the low-carbon transition, the world must take the following measures to spur greater private investment: Grow domestic demand: To stay competitive, countries must transform their home markets to stimulate domestic demand for low-carbon solutions and to build scale and export capability. Business engagement at international level: It is vital for governments to engage business at a much deeper level, particularly in the international climate framework negotiations, and to look to business as the main driver of clean investments. By doing so, governments can leverage their investments up to 15-fold. Business often invests for the long term, especially in large, billion-dollar infrastructure projects and needs long-term green policies to match this. Long-term government incentives: Investing in clean energy and mitigation technologies by business requires policies that encourage stable, long-term financial flows. These policies must be at national, bilateral, multilateral and possibly at a global level. Business often invests for the long term, especially in large, billion-dollar infrastructure projects and needs long-term green policies to match this. Legislation is an important element in what makes a country an attractive – or unattractive – place to invest in clean technology. A recent demonstration of this was the statement by Deutsche Bank that it would focus its US$7 billion green investment fund outside the US after the US failed to pass legislation that would put a price on carbon. Address the obstacles to clean tech investment in developing countries: So far, many developing countries have failed to unlock sufficient private investment because a number of specific risks associated with clean energy have not been addressed. Funding and subsidies for clean energy: Governments must put in place measures to reduce investment risks, such as combined funding of projects, outright subsidies and/or risk guarantees. Greater international financial support will be needed to increase mitigation measures in developing countries. New public private partnership models: Given the scale of investment required, neither the private sector nor the public sector can address the decarbonisation challenge alone. New, straightforward public private partnership models must be developed that can drive investment into tried-and-tested green technology. Individual governments have started to implement incentives to stimulate investments. At the same time, business continues to seek opportunities to invest in and develop low-carbon products. However, the negotiations in Cancun are still being counted on to provide the greatest incentive. For business, the market will always provide the most effective stimulus. Carbon needs to be valued appropriately and a global market driver needs to be created for clean, low-carbon investment. Matthew Bateson is Director of Energy & Climate for the WBCSD, one of four key areas of focus for the Council. Prior to his appointment in 2008, he worked for Shell for over 14 years, in Finance and latterly in Corporate Affairs. He also worked in the company’s International Government Relations department, handling government relations in Nigeria and those pertaining to Shell’s Canadian oil sands development. The WBCSD is a CEO-led, global association of some 200 companies. It provides a platform for companies to explore sustainable development, share knowledge, experiences and best practice, and to advocate business positions on these issues in a variety of forums, working with governments, non-governmental and intergovernmental organisations. Members are drawn from more than 30 countries and 20 major industrial sectors. The WBCSD also benefits from a global network of some 60 national and regional business councils and regional partners. Matthew Bateson, Managing Director Energy & Climate Focus Area Tel: +41 (22) 839 3137 Fax: +41 (22) 839 3131 Email: Website: | 114 |

Finance and Markets Green growth: incorporating sustainability at the heart of company strategy is delivering impressive results. Image courtesy of BMW Emma Howard Boyd Director of Jupiter Asset Management Low-carbon world-beaters: Energy-efficient solutions are growth drivers for blue-chips Given the urgency required in meeting ambitious carbon reduction targets, we should be enthused and emboldened to see established, large-cap companies making it their business to facilitate the transition to a low-carbon economy, and reaping the rewards from doing so, says Emma Howard Boyd, director of Jupiter Asset Management. A strong business won’t stand still as the world around it changes. A glance at the most enduring and established companies reveals a common culture of continuous innovation and adaption in response to anticipated risks and opportunities. In this respect, efforts to decarbonise and yet grow our economy represent an exciting long-term opportunity for those businesses that can successfully market low-carbon solutions. Indeed, even in a deeply challenging economic environment, recent years have been characterised by an increasing flow of corporate low-carbon growth stories, not least from established businesses sensing a burgeoning market now and in the future. The presence of large-caps within this bracket is especially notable, as seed investments into new product lines have reached maturity and are delivering strong and stable rewards. To borrow a phrase from UNEP’s Green Economy report from earlier this year, this marks the beginnings of “green growth”: returns on investment “in economic sectors that build on and enhance the earth’s natural capital or reduce ecological scarcities and environmental risks.” Green growth – to name just a few A high-profile example of the value added in recognising low-carbon opportunities can be seen at General Electric (GE). Between 2005 and 2009, the company’s investment in research and development behind its ‘Ecomagination’ growth initiative surpassed US$5 billion. Coupled with the news that the company has committed an additional investment of US$10 billion by 2015, this serves as a show of confidence in low-carbon, sustainability-related opportunities. Clear successes underpin this. According | 115 |