Around the world, millions became unemployed practically overnight and millions lost a huge portion of their savings.

These events will have catastrophic consequences for people’s well-being and will shape economic and political trends for years, if not decades. This doesn’t even account for the impacts of the Covid-19 pandemic on human health and the tragic situation unfolding in hospitals around the world.

Much will be written about this historical event as society takes stock of what just occurred, but one thing is clear: resilience must be a driving force in the policy response.

As investors of last resort, governments have the key role to play. The central bank playbook in 2008 and 2020 is similar, as liquidity evaporated and financial contagion spread, central banks had to step in as buyers of last resort with increasingly larger rescue packages.

Zoom climate diplomacy: ‘Technology doesn’t help build trust’

At the same time, governments are working desperately on the fiscal front to provide economic stimulus to the real economy and prevent an economic depression. Estimates of bailout packages are in the order of $10 trillion globally and growing.

 So where does this leave us?

Governments and taxpayers bear the ultimate risk and thus have the mandate and responsibility to reduce these risks.

There will be a cost but as we clearly see with the Covid-19 pandemic, the cost of prevention pales in comparison. The same could be said about climate change. 

A working paper from the US National Bureau of Economic Research found that by 2100, the costs of climate change would reduce global GDP by 7.22% while the costs of prevention – by meeting the goals of the Paris Agreement – are substantially less, around 1.07% of global GDP.

For the US, the cost of inaction is even higher at 10.5% of GDP. To put things into perspective, this is roughly in line with the costs of a Covid-19 pandemic every year.

Japan sticks to 2030 climate goals, accused of a ‘disappointing’ lack of ambition

As we move forward past this crisis, policymakers should have resilience in the front of their minds. Below are some practical steps that can be taken in our policy response not only to enable us to boost green growth and reduce greenhouse gas emissions but also to create a more resilient financial system.

Rebalance incentives for publicly traded companies to reward long-term sustainability over short-term profits

Companies are too focused on the next quarter at the expense of their long-term financial viability. Fiscal and monetary policies need to reward long-term investment and risk reduction. Executives should not be compensated based on stock performance but broader metrics.

Company boards should emphasise long-term stability and survivability. Inherent in this is the need to address climate risk. Stock buybacks financed with debt should be forbidden.

Better safety nets

Our world is moving towards greater disruptions from climate change, but also other types of crises driven by greater interconnectedness, which generates systemic risk. As we see with Covid-19, a crisis in one place can quickly spread to the rest of the world and this is not limited to communicable diseases.

Financial crises in one corner of the globe can impact our supply chains, and our financial markets as trading in various financial products is linked in incredibly complex arrangements, again, generating systemic risk. A world with more risks needs better safety nets and more resilient systems. There is a need to improve safety nets for all citizens whether these are economic, health and climate-related shocks.

Eliminate fossil fuel subsidies

An estimated $5.2 trillion is spent annually on fossil fuel subsidies. This is wasteful and damaging to the environment. It leads to inefficient use and unnecessary greenhouse gas emissions, creates rent-seeking in the economy and presents a huge opportunity cost for taxpayers.

Trillions should, instead, be invested in industries of the future which have the potential to provide for our energy needs while eliminating the risk of climate change. With oil at around $25 per barrel, consumer subsidies could be eliminated now with very little consequences.

Embrace telework trends 

As companies and consumers race to adapt to the massive disruptions from Covid-induced shutdowns, we have seen how millions of workers have adapted to working from home and used new technologies to collaborate in ways that were unimaginable a decade ago.

A distributed workforce can increase the resilience of business operations, can massively reduce transport-related emissions from commuting and work-related travel and can even increase the affordability of cities and generate distributional effects as there is less need to concentrate workers in one place.

Embrace the public sector 

View the public sector not as an investor of last resort but as a leader, shaping future investment trends in a way that is aligned with societal goals. Public investment shapes markets and creates benefits to society that the private sector cannot provide.

Through publicly-funded research and development programmes, scientists have developed the core technologies behind the internet and modern medicine. Similarly, the revolutions taking place in renewable energy production, electric storage and electrified transportation would not have been possible without early-stage investments made by the public sector.

Investments for public benefit in areas like new energy technologies, public health and urban infrastructure are critical to reducing long-term risks and can ultimately lower public outlays when disasters strike.

Green bailouts? – Climate Weekly

While there is still hope for this public health threat to be minimised and, hopefully, eventually eliminated, our economic response will have repercussions for decades.

It’s the right time to focus on a vision for a resilient, inclusive, and sustainable economy.

Donovan Escalante is a manager at Climate Policy Initiative, an analysis and advisory organisation that works with governments and investors to drive economic growth while addressing climate change. 

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(Pic: Arnold Paul)

By Megan Darby

Coal power generation in China will peak in 2024 as the country shifts to renewables, analysts at Bloomberg New Energy Finance predict.

As China considers an emissions cap and amid rising concern over smog in its large cities, the country’s plans to expand polluting coal power generation are under scrutiny. One Chinese energy expert told RTCC he hoped peak coal could come as early as next year.

However, BNEF forecasts coal will continue to dominate the Chinese electricity mix for the next ten years. China will add 1,000GW of renewable power generation capacity – mainly solar and wind – to its energy mix by 2030, researchers say.

The Asia Pacific region will account for more than half of net new power capacity to the end of next decade, according BNEF’s 2030 market outlook report, with China the largest single market.

Milo Sjardin, head of Asia Pacific for BNEF, says: “The period to 2030 is going to see spectacular growth in solar in this region, with nearly 800GW of rooftop and utility-scale PV added. This will be driven by economics, not subsidies ‒ our analysis suggests that solar will be fully competitive with other power sources by 2020, only six years from now.

“However, that does not mean that the days of fossil-fuel power are over. Far from it ‒ rapid economic growth in Asia will still drive net increases of 434GW in coal-fired capacity and 314GW in gas-fired plant between now and 2030. That means that emissions will continue to increase for many years to come.”

Global picture

Worldwide, BNEF expects US$ 7.7trillion to be invested in power capacity, of which two thirds will be renewable.

Fossil fuels are still projected to provide the largest share of power generation in 2030, at 44% of global demand. Some 1,073GW of coal, gas and oil capacity will be added to the mix, mainly in developing countries.

Michael Liebriech, chair of the advisory board at BNEF, says: “This country-by-country, technology-by-technology forecast of power market investment is more bullish on renewable energy’s future share of total generation than some of the other major forecasts, largely because we have a more bullish view of continuing cost reductions.

“What we are seeing is global CO2 emissions on track to stop growing by the end of next decade, with the peak only pushed back because of fast-growing developing countries, which continue adding fossil fuel capacity as well as renewables.”

Gas surge in Americas

In the Americas, gas-fired plants are set to take the single largest chunk of investment – US$ 314billion of a total US$ 1.3trillion – as developers capitalise on the shale gas boom.

Coal’s share of capacity will fall from 21% to 9% as environmental regulations kick in, while renewables jump from 7% to 28%.

Michel DiCapua, head of Americas analysis for Bloomberg New Energy Finance, says: “Two striking conclusions from our research: first, wind and solar will win bigger and bigger shares of the investment in new capacity as their technology costs go on falling; second, coal will be in rapid retreat, its share of generation in the Americas falling from 26% in 2012 to 17% in 2030.”

Europe phases out subsidies

In Europe, BNEF’s model suggests demand will grow by only 9 per cent to 2030, as energy efficiency improves.

Some 557GW of renewable power capacity will be built, researchers estimate. Renewables will account for 60% of capacity in 2030, up from 40% in 2012.

Solar and wind power will be increasingly viable without subsidies, BNEF says, with only offshore wind requiring continued support throughout the 2020s.

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By Megan Darby

The rate of investment in renewable energy needs to double to limit global warming to an acceptable level, according to a leading industry body.

The International Renewable Energy Agency (IRENA) estimates $550 billion a year is needed until 2030, in a report.

Coupled with action on energy efficiency, it says this would put the renewable sector on course to provide 36% of the energy mix by 2030. Business as usual would deliver a 21% share.

Speaking at a conference in New York last week, Adnan Amin, director general of IRENA, said: “We need to double the level of investment that we are seeing today to significantly scale up renewable energy and reduce carbon emissions to an acceptable level.

“This level of investment together with energy efficiency measures will help mitigate the catastrophic impact of climate change.”

The figure, produced in IRENA’s renewable energy roadmap report, includes energy consumption from buildings, transport and industry as well as electricity generation.

The majority of investment is expected to go into wind, solar and hydro power generation, but renewable heating and cooling is identified as an important emerging sector.

Amin said: “The emerging challenge we are facing today is financing renewable energy technologies in the end use sector. This is crucial to make the renewable energy transition complete.”

Human impacts

According to the roadmap, the costs of developing renewable energy would be partly outweighed by benefits to health from lower pollution.

Health-related costs would be cut by $80 – $200 billion a year globally, IRENA said. Counting socio-economic factors, the benefits could rise to $740 billion a year by 2030, it claimed.

The hike in renewables investment was modelled to keep carbon dioxide concentrations in the atmosphere below 450 parts per million. That is the threshold associated with a 50% chance of limiting global temperature rise to 2 degrees Celsius.

The International Energy Agency (IEA) estimated in a report published in June that $44 trillion of investment in clean energy technologies is needed by 2050 to prevent runaway climate change. That investment would save $115 trillion worth of fuel costs, the IEA found.

The call for investment comes as interested contributors to the Green Climate Fund meet in Oslo this week.

The UN green bank is expected to raise between $5 billion and $15 billion from national governments by the end of this year, rising to $100 billion a year by the end of the decade.

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Pic: Chuck Coker/Flickr

By John McGarrity

Investment in low carbon sources of energy will fall well short of what is needed to stave off climate change unless a breakthrough is reached in stalled UN climate talks, the IEA said in a report on Tuesday.

In a major report highlighting trends in energy spending, the Paris-based agency said $53 trillion will need to be funnelled towards lower carbon energy and efficiency over the next two decades in order to limit a rise in global temperatures to below 2C.

A total of $1.6 trillion was spent on all types of energy extraction, generation and distribution last year, the IEA said, but just $250 billion (16%) of this was directed towards renewables and energy efficiency, around $50 billion less than in 2011 as investment stalled in some countries and the costs of solar technology declined.

“The investment path that we trace in this report falls well short of reaching climate stabilisation goals, as today’s policies and market signals are not strong enough to switch investment to low-carbon sources and energy efficiency at the necessary scale and speed,” the IEA report added.

The agency, which represents members of the OECD, said a clear steer from government and the imposition of high costs on extracting and burning fossil fuels would be essential so that low carbon energy can be made sufficiently attractive to investors.

Spending on renewables and energy efficiency will need to almost treble to $730 billion a year by 2030 for the world to make a decisive move away from fossil fuels.

If the world’s major emitters do manage to agree policies that can cap a temperature rise to 2c, then $300 billion of fossil fuel investments would be rendered as stranded assets, the report adds.

The report came as policymakers and energy companies digested the publication of proposals by the US Environmental Protection Agency to curb emissions from the country’s electricity sector, particularly from coal-fired power stations, while China on Tuesday said it would set an absolute cap on carbon emissions from 2016.

UN climate talks in Bonn this week – which are aimed at preparing the ground for a climate deal next year in Paris – will try and make progress on how the world can slow investment in fossil fuels and scale up spending on renewables.

But the IEA noted that governments are finding it increasingly difficult to agree clear policies that would prompt a major shift to low carbon technologies because of demands by energy consumers for lower energy prices and growing public concerns about subsidies for renewables.

Governments negotiating at Bonn this week still bear most of the responsibility for driving investment in low carbon technologies, rather than markets, the IEA said.

“In many countries, governments have direct influence over energy sector investment, for example, through retained ownership of more than 70% of global oil and gas reserves or control of nearly half of the world’s power generation capacity, via state-owned companies,” today’s report said.

But the IEA noted that governments are finding it increasingly difficult to agree clear policies that would prompt a major shift to low carbon technologies because of demand for low energy prices and concerns about the level of subsidy needed for renewables.

Signals

“Against this backdrop, there is a risk that policymakers fail to provide clear and consistent signals to investors, with particular impacts on low-carbon technologies that depend, for the moment, on policy support,” the report said.

The IEA’s report is more grist for the mill for investors who are pressing governments to back up carbon trading with ambitious targets.

“Where carbon isn’t priced, where the price is weak or where fossil fuels are subsidised, the incentive to make this switch is much reduced. A strong carbon price which boosts investment will also reduce the need for fossil fuel imports and strengthen regional energy security, said Stephanie Pfeifer, Chief Executive of the Institutional Investors Group on Climate Change.

The group represents 88 of Europe’s largest investors with assets worth €7.5 trillion.

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Pic: echiner1/Flickr

By Sophie Yeo

The number of investment managers offering fossil-free portfolios to clients increased by over 50% in the past year, demonstrating a growing interest in divestment among investors.

In a survey completed by 587 investment professionals, 36% indicated that they now offered investors the option to explicitly exclude the fossil fuel industry from their investments – up from 22% in 2013.

The findings show a growing trend of investors turning away from oil, coal and gas on both ethical and financial grounds. Divestment campaigners argue that such investments create a financial as well as a climate risk, as strengthening climate policies mean that unburned reserves of fuel could become stranded assets.

“In my view, the growing drumbeat of responsible investors seeking investment strategies with little or no exposure to coal, oil, and gas extraction companies will only increase as more evidence of the negative effects of climate disruption reverberate from the recent IPCC and National Climate Assessment reports, and as more analysts and investors understand the stranded asset risk equation,” said Steve Schueth, president of investment company First Affirmative, which produced the survey.

Ethical imperative

According to the survey, 76% of those questioned believed that the risk of investing in fossil fuel companies was growing, while 56% said they were concerned about the possibility of stranded assets. 9% said they had plans to introduce fossil-free portfolios options to their clients.

The survey questioned investment professionals taking part in an annual Conference on Sustainable, Responsible, Impact Investing (SRI).

While this suggests that those surveyed have a pre-existing interest in ethical investment, it demonstrates that divestment from the fossil fuel industry is gaining ground as a moral issue in its own right. This suggests the tide is turning against the argument put forward by some investors that the ethical imperative is not as strong as in previous divestment campaigns, which include apartheid and the tobacco industry.

Peter Pereira Gray @wellcometrust: Fossil fuel divestment not as simple as tobacco. Cannot refuse as so integral 2 system #ClimateAction

— Carbon Connect (@CarbonConnectUK) May 7, 2014

Some, including Harvard University, have refused to divest on the grounds that shareholders can have a greater impact through engaging with the fossil fuel companies in which they invest to pressure them into becoming more sustainable.

But even among the ‘responsible’ investment managers questioned, only 23% said they had participated in shareholder advocacy with fossil fuel companies on behalf of their clients, while almost 40% said they never had, and had no plans to do so in the future.

Among those who had engaged with fossil fuel companies, the most popular advocacy options were trying to persuade companies to report on plans to assess the carbon asset risk and setting quantitative goals for greenhouse gas reduction.

“If there is a hot topic around SRI office water coolers, this is it,” said Schueth. “The 2014 Fossil Fuels Divestment Survey results confirm that interest in fossil fuel free investment strategies is on the rise.”

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(Pic: DECC)

Download Investing in the Clean Trillion for CERES’ detailed analysis of how an additional $36 trillion can be raised to invest in clean energy

1. Develop capacity to boost clean energy investments and consider setting a goal such as 5% portfolio-wide clean energy investments

The heightened commitment resulting from a portfolio-wide goal would give investors the best chance of capitalizing on new clean energy-related opportunities across all asset classes, especially fixed income, as opposed to relegating this clean energy theme to just public equity or venture capital. Bolstering internal and external capacity for increased infrastructure investment, both directly and through other vehicles, will strengthen the potential to pair the necessary cash flows of clean energy infrastructure assets with investor liabilities and funding requirements.

2. Elevate scrutiny of fossil fuel companies’ potential carbon asset risk exposure

In a 2011 report, Mercer warned that climate-related government policies could increase portfolio risks by 10 percent over the next 20 years. The potential for reduced demand for fossil fuels driven by non-policy factors such as increased renewable energy, energy efficiency and fuel switching, also creates risks for investors who own fossil fuel companies. Investors should be paying increased attention to carbon asset risks by engaging with fossil fuel firms, including oil and coal companies, on the potential of higher cost, carbon-intensive fossil fuel reserves becoming “stranded,” thus creating long-term portfolio risks.

3. Engage portfolio companies on the business case for energy efficiency and renewable energy sourcing, as well as on the financing vehicles to support such efforts

Encouraging companies to aggressively pursue energy efficiency opportunities can help unlock projects with high returns, thereby creating shareholder value. By using more clean energy resources to reduce fossil fuel dependency and carbon emissions, companies will: 1) reduce vulnerability to volatile fossil fuel prices; 2) reduce exposure to future carbon regulations; and 3) identify new potential low-carbon business opportunities and customer solutions, leading to new revenues. All of these benefits underpin academic research showing that, over the long term, companies with leading environmental performance also deliver superior financial returns for investors.

4. Support efforts to standardize and quantify clean energy investment data and products to improve market transparency

Standardizing definitions of key investment terms, such as what constitutes a “climate bond,” will minimize the due diligence burden on investors and reduce transaction costs of investing in newer clean energy-related investment products. By reassuring potential buyers about what they are purchasing, standardization will also increase the liquidity of climate bonds and other products. Ultimately, better data on clean energy investment will foster easier, more precise benchmarking evaluation of potential deals.

5. Encourage “green banking” to maximize private capital flows into clean energy

Expanded issuance of climate bonds by multilateral banks will broaden the universe of highly-rated fixed-income products attached to clean energy, thereby making it easier for investors to increase allocations to clean energy within existing liquidity/creditworthiness constraints. Investment-grade credit ratings for project bonds, such as S&P’s recent approval of SolarCity bonds, will enable investors to capture the relatively higher yield of these instruments, especially relative to sovereign debt. The $2.5 trillion covered bond market offers attractive products for pension funds and insurers extra yield relative to sovereign debt, but with less risk than unsecured bank debt or asset-backed securities—and expanding this market into clean energy will increase such opportunities.

6. Support issuances of asset-backed securities to expand debt financing for clean energy projects

Asset-backed securities (ABS) for energy efficiency and renewable energy projects offer long-term, low-volatility yields that match well with the liabilities of insurers and pension funds. To reach a scale that is attractive to these investors, however, this market must overcome growing pains that are common to any new capital markets product. Key steps for achieving scale include:

1) minimize the due diligence burden on buyers of clean energy issues by standardizing terms for power purchase agreements

2) make future cash flows from such issues more stable

3) enable more accurate rating and pricing of such issues by providing more detailed historical data

4) limit downside risk for buyers of early clean energy ABS issues through credit enhancement by public or private banks.

7. Support development bank finance and technical assistance for emerging economies

Expanded risk insurance for clean energy investments in developing countries removes a key red flag on otherwise attractive investments. More generally, one of the ancillary benefits from helping emerging economies to embrace a low-carbon future may be significant new investment opportunities for foreign sources of capital. It’s worth noting that development bank financing creates $3-15 of private investment opportunity for every $1 of public funds deployed.

8. Support regulatory reforms to electric utility business models to accelerate deployment of clean energy sources and technologies

With a combined enterprise value of trillions of dollars, relatively low volatility and predictable earnings, the debt and equity of electric utilities have long been a significant share of institutional investor portfolios. But many trends are eroding the viability of traditional utility business models, which have long been premised on selling more power rather than helping ratepayers use less electricity.

As stewards of trillions of dollars of capital, investors have a strong interest in ensuring that electric utilities remain financially viable in a changing landscape, where energy efficiency and distributed renewable energy are becoming bigger factors. Supporting utilities’ transition to new, more sustainable business models will preserve the electric utility sector as a viable place for investors to put their capital to work.

9. Support government policies that result in a strong price on carbon pollution from fossil fuels and phase out fossil fuel subsidies

Climate change has the potential to harm long-term investor returns via 1) physical impacts, such as rising sea levels and more pronounced storms and heat waves, which can severely damage individual companies and entire economies; 15 and 2) the implementation of policies to reduce carbon emissions, which, especially if delayed for another decade or so, may come as a drastic and abrupt shock to company business models and economies at large.

Adoption of economy-wide carbon prices now helps to prevent both of these risks, and enables investors to plan prudently for the transition to a low-carbon global economy. More broadly, the adoption of carbon prices and removal of fossil fuel subsidies will create supportive tailwinds across all asset classes for low-carbon investments a nd headwinds for high carbon investments such as oil, gas and coal production.

10. Support policies to de-risk clean energy deployment

Policies that provide stable, long-term cash flows to clean energy projects that do not depend on unreliable and often complicated tax incentives will make clean energy significantly more attractive to institutional investors, especially as clean energy technologies approach cost competitiveness. Moreover, a focus on large-scale deployment will create investment opportunities of the size necessary for investors to justify building expertise in this new area. Finally, the lower project costs that come with increased clean energy deployment will stimulate more investment opportunities potentially worth trillions of dollars.

Download Investing in the Clean Trillion for CERES’ detailed analysis of how an additional $36 trillion can be raised to invest in clean energy

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(UN Photo)

By Nilima Choudhury 

Brazil, Chile and Nicaragua offer the most attractive low carbon opportunities in Latin America and the Carribbean, according to market analysts Bloomberg New Energy Finance.

Clean energy investment in the three countries topped US$11.3 billion in 2012, BNEF crediting their open markets and high electricity demand for the figures.

The ratings are part of Bloomberg’s Climatescope index, an analysis of government policies and the level of current investment in clean energy which it now plans to expand to 55 countries across Africa, Asia and Latin America.

Backed by the UK, US and the Multilateral Investment Fund (MIF), it will measure and rank the investment potential for clean energy in developing countries.

“We are delighted to continue and expand upon the important work we began with the MIF two years ago,” said Michael Liebreich, CEO of BNEF.

“Thanks to the additional support of the UK and US, we will widen the lens to profile activity in other developing nations where clean energy investors want to put capital, but lack information to make critical decisions.”

The UK’s International Development Secretary Justine Greening added: “Investors are clear – they have the capital but need reliable information to decide where and how to invest it. This index will provide the research investors need, helping to drive investment into new areas and to secure clean, stable energy supplies for millions of the world’s poorest people.”

Spending on clean energy between richer and developing countries shrank to 18% last year from 250% in 2007, according a UN report published earlier this year.

The biggest regional surge in investment was in the Middle East and Africa, where spending grew 228% to $12 billion in 2012.

One key complaint from international investors looking to finance developing world energy projects is a lack of clear, reliable information on risks and regulatory issues.

Ben Warren, EY’s global cleantech transaction services leader said: “Although renewable energy infrastructure projects will soon be economically viable in their own right, they are currently reliant on some form of subsidy to deliver returns.

“In the absence of stable policy and regulation, underlined by strong political support, long term investors will find it difficult to buy-in to this sector.”

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(Pic: World Economic Forum)

By Nilima Choudhury

Former US vice-president Al Gore and his investment partner have made a four-point plan for businesses to make the transition to a carbon-free economy.

Writing in the Washington Post, Gore and David Blood, chairman of Generation Investment Management say the onus lies on investors, who have the power to stop fossil fuel industry growth by divesting funds. Otherwise, they face losing money when assets lose their economic value in the future.

“The case to incorporate carbon risk into both equity and debt valuations now is one of short- and long-term prudent risk management,” said Gore and Blood.

They are calling on companies to firstly identify the extent to which carbon risk is embedded in current and future investments.

Second, they should engage with board members in planning how to mitigate and disclose carbon risks.

“Investors should pressure executive teams to divert cash flow away from capital expenditures on developing fossil fuels and toward more productive uses in the context of a transition to a low carbon economy,” they wrote.

Thirdly, the pair encourage companies to start diversifying through investments in low carbon industries.

Investors should capitalise on emerging industries like renewable energy, electric vehicles and energy efficient technology to “buffer the impact an extreme carbon risk event might have on a portfolio.”

Fourth, Gore and Blood tell companies to divest from high-carbon fossil fuel assets, which they say is the “surest way to reduce carbon risk” fast.

They said this may prove to be the most difficult of their four-point plan to complete, but “such a transition could be phased in over several years.

“Early and easy progress can be made by divesting from the emissions-intensive forms of energy since they are likely to face stranding well ahead of less carbon-intensive fossil fuels.”

Risks

If carbon risk is not taken into account by fund managers, Gore and Blood said they would be failing their investors and shareholders.

Gore warned that, in a decade or more, the consequences for other assets, like real estate, agricultural land and infrastructure, which would lose their value as floods, droughts and storms have greater impact.

Gore and Blood’s recommendations could take a decade to complete, the partners admit, but they insist that the first steps at least should be undertaken urgently.

Craig MacKenzie, head of sustainability at pension fund Scottish Widows told RTCC that business was keen to play a “substantial role” in mitigating the effects of climate change, provided governments take a firm lead.

MacKenzie said many investors were already divesting away from the coal sector because most banks agree that coal does not generate good investment returns, but that oil and gas remained strong investment opportunities. He said it would be a “brave pension fund that would turn away from fossil fuels like oil and gas at the moment.”

Gore and Blood said on the importance of divesting for a cleaner economy: “The transition to a low carbon future will revolutionize the global economy and present significant opportunities for superior investment returns.

“However, investors must also acknowledge that carbon risk is real and growing. Inaction is no longer prudent.”

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(Pic: Arnold Paul)

By Nilima Choudhury 

Current carbon accounting standards in the UK are inadequate and need to be overhauled, says a report from the Carbon Tracker Initiative and accountancy body ACCA.

Their analysis of 21 coal mining companies and 14 oil companies revealed that while 63% of those examined mentioned climate change risk only 37% disclosed their greenhouse gas emissions.

Current legislation only requires companies to disclose what they are currently burning, rather than their full fossil fuel reserves, but Carbon Tracker and the ACCA say investors should have access to full greenhouse gas emissions data to judge if their money is safe.

Current UK legislation only requires companies to disclose what they are currently burning, rather than their full fossil fuel reserves.

“The report demonstrates how the current accounting standards are not set up to adapt to a low carbon future,” James Leaton, research director at the Carbon Tracker Initiative said.

“We need more forward looking information if the financial markets are to adjust to a low carbon energy system and avoid inflating the carbon bubble.

“Unless companies are disclosing what their exposure is to fossil fuels and providing a sensitivity analysis of how their business would fare in a low demand, low price, low carbon scenario, how do the banks understand their exposure?”

According to the latest IPCC report, around two-thirds of the current proven coal, oil and gas reserves must stay in the ground to limit global warming to 2°C above pre-industrial levels.

Financial regulators, including stock market listing authorities, are charged with ensuring market integrity and stability.

One key role is that of identifying risks – such as those associated with climate change – that are beyond the power of individual companies or investors to address, and then requiring consistent disclosures to enable investors to understand these risks.

The London Stock Exchange itself holds more coal reserves than any other stock exchange and total fossil fuel shares worth £900 billion.

Earlier this month, campaign group the World Development Movement (WDM) asked for banks and pension funds to make public the details of their fossil fuel investments.

Although new rules in the UK have come into force which mean companies will be obliged to report its CO2 emissions from their own energy use, they will not have to tell the public about emissions from projects they finance or are involved in.

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Crowdfunding project has enabled schools to install solar panels (pic: Mike Cogh)

By Sophie Yeo

Crowdfunding is providing the financial impetus needed to lift renewable energy projects off the ground, as an investment company raises £700,000 in a month.

Abundance Generation, a finance crowdfunding platform, is encouraging ordinary people to invest small amounts to fund renewable energy products across the UK.

Since the project launched last summer, it has raised a total of £3m. A further £7m of new projects are planned for launch through the rest of 2013.

The achievement comes after a recent report, commissioned by the Institutional Investors Group on Climate Change, showed that climate change was becoming a material consideration for investors when deciding where to put their money, but that inadequate and halting policy efforts by world governments were still undermining the flow of capital towards low carbon technology.

So far, the project has raised enough money to complete two renewable energy projects, including equipping schools and new build housing with solar panels.

The solar panels school project will pay an effective rate of return of between 7.2% and 8.3% over the 20 year duration of the project to investors, which equates to a doubling of the investor’s money over the term of the project.

Bruce Davis, cofounder of Abundance Generation, says, “To break all records in July and August, traditionally a slow months for investing, shows the growing potential of democratic finance and crowdfunding to fill the gap left by banks in lending to this important infrastructure investment for the UK’s future energy needs.”

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Investors are committed to investing in low carbon solutions, according to a new report

By Sophie Yeo

Investors view climate change as a ‘material risk’, and are adapting their activities accordingly, according to a new report.

Commissioned by the Institutional Investors Group on Climate Change, it is based on a survey of 37 asset owners and 47 asset managers with collective assets totalling more than USD $14 trillion.

It finds many investors are making decisions whether or not to invest based upon climate change considerations, while there has been a significant increase from last year in the number of respondents who are referencing the risks of climate change in their investment policy.

For instance, climate risk analysis is being performed within asset classes, and this is being done for specific investments rather than at portfolio level.

Almost 100% of the investors questioned in the report performed climate risk analysis in their equity portfolios.

Climate change is also playing a role in how asset owners monitor their asset managers; 83% said that they consider the extent to which managers integrate climate change into their investment process, while 69% said that this materially influenced their selection decisions. This figure has risen by 26% from last year.

“Despite the wider economic challenges, climate change is firmly established as a material risk for investors, and their assessment of climate risk is shifting investment decisions,” said Stephanie Pfeifer, Chief Executive of the European Institutional Investors Group on Climate Change.

She added, “However, investors still face many challenges, not least the on-going policy uncertainty which continues to make measuring long term climate risk and emissions exposure difficult.

“While clear policy signals do much to help investors measure this risk, the report shows that investors are making progress in the absence of these signals and should continue to do so.”

The report was conducted by a number of investors groups, which focus on addressing the risks and opportunities of climate change in investment practices.

Uncertainty

Despite the enthusiasm of investors to address the problem of climate change across portfolios, these efforts are being hindered by a lack of commitment on the part of policy makers.

Inadequate and halting policy efforts by world governments, and especially those in major greenhouse gas emitting nations, are still undermining the flow of capital towards low carbon technology, says the report.

Nathan Fabian, Chief Executive of the Australia and New Zealand-based Investor Group on Climate Change, said, “We are now at a stage where investment practice and climate policy will need to move together to address climate change risk.

Policy will improve, but policy certainty will remain elusive. That is why aligning investment practice with the underlying risks of climate change is so important.”

The lack of certainty at a governmental level is one reason why decisive action on the part of investors is so crucial. But, the report adds, while investors are already committing to climate change-related investment practices, they would be willing to do a lot more if they received the appropriate policy signals.

While the survey has shown that large amounts of capital can be invested in clean energy and low carbon solutions.

However, it remains essential that credible and consistent legal frameworks on regulating greenhouse gas emissions and incentivising clean energy investment are established in order to transition towards a low carbon economy.

The post Fund managers worth $14tr say climate change influences investments appeared first on Climate Home News.

Global investment in clean energy falls short of that needed to meet climate change targets, according to a new report by the International Energy Agency.

While 2011 saw global investment in renewables hit a record of $257 billion, the IEA warns that $23.9 trillion will be needed in investments by 2020, and around £140 trillion by 2050 to keep temperature rises below 2°C.

While good progress is being made in onshore wind, offshore wind still lags behind warns report (© Jkavo/Creative Commons)

That means nations will have to spend $36 trillion more than what is currently predicted by 2050 – with China having spent the most.

The report says a host of new technologies are ready to transform energy systems, drastically cut emissions and enhance energy security, as well as offering a huge investment return.

But the IEA warn that the clean energy transformation is not on track to make its require contribution to fighting climate change.

“While our efforts to bring about a clean energy transformation are falling further behind, I want to stress the golden opportunity before us: If significant policy action is taken, we can still achieve the huge potential for these technologies to reduce CO₂ emissions and boost energy security,” said IEA Executive Director Maria van der Hoeven.

“Now that we have identified the solution and the host of related benefits, and with the window of opportunity closing fast, when will governments wake up to the dangers of complacency and adopt the bold policies that radically transform our energy system? To do anything less is to deny our societies the welfare they deserve,” she said.

Hydro-power, biomass, onshore wind and solar photovoltaic technologies are all making progress, according to the report.

But technologies the IEA say have the largest potential, such as carbon capture and storage, offshore wind power and concentrated solar power, are showing the least progress and the report warns they are lagging behind what is needed to prevent a rise above 2°C.

Slow take up of energy efficiency measures will also need to be stepped up, says the report.

The report, Energy Technology Perspectives 2012, builds on the IEA’s Tracking Clean Energy Progress report issues in April.

The post IEA: Clean Energy lags behind that needed for two degrees target appeared first on Climate Home News.

Global investment in renewable technologies in 2011 grew to a record $257 billion, as global renewable power capacity exceeded 1,360 GW.

This was a 17% increase in investment in 2011, smaller than the 34% growth witnessed in 2010, according to new reports from the UN Environment Programme (UNEP) and the Renewable Energy Policy Network for the 21^st Century (REN21).

The two organisations, however, say this investment took place at a time when the costs of renewable technologies are falling rapidly and a time of economic and policy uncertainty in the developed world.

2011 saw a boom in solar investment while at the same time the cost of PV modules fell by around 50% (© Bright Source Energy)

“Despite the continuing economic crisis in some key traditional markets and continuing political uncertainties, more renewable energy was installed last year than ever before,” said Mohamed El-Ashry, Chairman of REN21.

“Policies helped to drive renewable energy forward… As a result, renewable energy is spreading to more countries and regions in the globe.”

Report Highlights

The REN21 report found continued growth of renewables in all end-use sectors – power, heating and cooling and transport – and found that by the beginning of 2012, 118 countries worldwide, including nearly half in the developing world, had renewable energy targets.

It also found that renewable technologies continued to expand into new markets.

Feed-in-Tariffs and other incentives gave roof-top PV installations a major boost in 2011 (© Mike Cogh/Creative Commons)

Last year the top countries for renewable electricity capacity – excluding large hydro – were China followed by the US, Germany, Spain, Italy, India and Japan. Ranking countries on a per-person basis gave different results with Germany coming in first, followed by Spain, Italy, the US, Japan, China and India.

Germany’s lead is partially down the boom in solar PV in German households, thanks to the country’s popular Feed-in-Tariff scheme.

Solar PV did well worldwide in 2011, becoming the fastest growing of all renewable technologies – overtaking wind as the prime technology and attracting nearly double the investment.

Total investment in solar power jumped 52% to $147 billion, partially down to the boom in rooftop installations in Germany and Italy and partially thanks to the spread of small scale PV to countries including China and the UK and large scale concentrating solar thermal (CSP) projects in Spain and the US.

Another winner last year was the US which surged back to within an inch of the top of the investment rankings.

The 57% leap to $51 billion was aided by developers rushing to benefit from the three significant incentive programmes before they expired in 2011 and 2012, according to the report.

China still sits at the top of the leader board – just $1 billion ahead of the US on $52 billion – followed by the US, Germany Italy and India – whose National Solar Mission helped to spur a 62% increase to $12 billion.

Investment in wind power also grew, with economies of scale meant the price of wind technology also fell by 10% (© Gonzalo Deniz/Creative Commons)

Ensuring Policy certainty

While renewables globally saw an increase in 2011 – both in terms of capacity and investment – the continued expansion is not guaranteed, warn the two reports.

2011 saw a number of smaller manufacturers go out of business as competitive challenges intensified and prices of technologies, particularly solar, dropped rapidly.

Photovoltaic module prices fell by close to 50%, and onshore wind turbine prices by around 10% – bringing them closer to competitiveness with fossil fuel energy.

Failing prices twinned with increasing economic austerity, particularly in the Eurozone, however, led many governments to slash their incentives programmes for renewables or to allow current schemes to expire.

While the UNEP report says the “promised land” is in sight, when renewable technologies will not need subsidies – Bloombery Energy Finance predicts onshore wind should be competitive with gas-fired generation by 2016 – they warn hastily made cuts could dent investment before this goal can be reached.

The REN21 report also highlighted the importance of strong renewable policies – both at national level and at city level.

During 2011, REN21 believes policy implementation was helped by factors including the Fukushima nuclear incident in Japan and the UN Secretary General’s announcement of the Sustainable Energy for All initiative.

With a special focus within the REN21 report on rural renewable energy, the group found it is increasingly considered a tool in providing millions of people with a better quality of life – with access to modern cooking, heating and cooling and electricity.

To reach the Secretary General’s 2030 targets, however, the report warns investment in the rural energy sector will have to increase five-fold.

A warning for Rio+20 delegations

Rural energy will be key to ensuring the UN Sustainable Energy for All targets are met, warns the REN21 report (© Eskinder Debebe/UN)

With renewable energy and the idea of the green economy, both hot topics for the Rio+20 Earth Summit building up this week, UNEP Executive Director, Achim Steiner says the report sends yet another “strong signal” to delegations.

“There are multiple reasons driving investments in renewables, from climate, energy security and the urgency to electrify rural and urban areas in the developing world as one pathway towards eradicating poverty,” he said.

“Whatever the drivers the strong and sustained growth of the renewable energy sector is a major factor that is assisting many economies towards a transition to a low carbon, resource efficient Green Economy.

“This sends yet another strong signal of opportunity to world leaders and delegates meeting later this month at the Rio+20 Summit: namely that transforming sustainable development from patchy progress to a reality for seven billion people is achievable when existing technologies are combined with inspiring policies and decisive leadership,” he added.

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