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03/12/2016

Climate finance on the rocks?

Energy

Climate finance on the rocks?

Wind turbines in South Africa. [Lollie-Pop/Flickr]

Climate finance is still going strong globally, but serious efforts are needed, including at the regulatory level, to sustain the momentum ahead of the UN Climate Summit.

Europe, and in particular solar and wind projects on the continent, are drawing the most interest from global institutional investors. However, more progressive policy is needed to amplify the movement, according to a network of sustainability-inclined investors.

According to a voluntary registry of global green investments, Europe is by far attracting the most investment, with over 90 projects mobilizing capital from European, American and Australian institutions. Australia (40+ projects), as well as ‘developed markets’ and the US (30+ projects each) closely follow.

Registry entries were made by members of various investor networks such as Asia Investor Group on Climate Change, and the Investor Network on Climate Risk. Unveiled on 18 September, the registry is now open to out-of-network investor entries.

In Europe, the number of registry entries is greatest for wind (27) and solar (15) investments. Public (10) and private equity (10) investments, with a key weighing in of low carbon technologies, are also well represented.

Energy efficiency, energy transmission/distribution, and industrial processes get seven entries each, while green buildings, green bonds, hydro and bio energy, and forestry and carbon markets see fewer entries.

A majority of projects in Europe receive under $10 million from network members including American and European pension funds such as PensionDanmark or California State Teachers’ Retirement System. Charities and religious-themed investment vehicles, such as the Church of Sweden, and the Church of England Investment Fund, are also key investors.

A second report unveiled with the registry provides concrete examples of key contributions of the institutional investor community to the development of a low carbon economy.

Thus, PensionDanmark allocates $3 billion or about 9% of assets to low carbon and grid infrastructure projects, while ING Group raised the renewable energy exposure of its loan portfolio from 6% in 2006 to 39% in 2013.

Talking to EurActiv, Institutional Investors Group on Climate Change Chief Executive Stephanie Pfeifer warns that it is too early to conclude that EU projects are the most attractive to the investment community since, “we are still at an early stage of building the registry”.

“Europe has been an attractive destination for low carbon investment and the entries reflect this, said Pfeifer.” “Currently, Europe is not as attractive because of policy uncertainty and (a) weak carbon price.”

More progressive policy is needed

Indeed, complacency is not in order, warned 347 investors representing $24 trillion in assets. Some are members of the above-mentioned networks.

In a statement issued ahead of the United Nations Climate Summit this week, they stress that “stronger political leadership and more ambitious policies are needed in order for us to scale up our investments…

“(In particular), we call on governments to provide stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challenge (and to) strengthen regulatory support for energy efficiency and renewable energy.”

Public climate finance

Separately, Europe gets climate funding from multilateral development banks (MDBs) such the European Investment Bank (EIB) and the World Bank.

These public institutions provide funds for both adaptation and mitigation schemes, including flood protection infrastructure and renewable energy projects, mostly in developing or emerging economies.

Within our continent, non-EU Europe/Central Asia (Albania, Kosovo, Armenia, etc.) and the 13 newest EU members (EU 13) received 22% and 14% of total MDB funding respectively in 2013, according to a joint report on MDB climate finance released on 19 September.

This is lower than 2012 figures, when the EU 13 had won 11% and non-EU/Central Asia, 15% of total funding.

On the global scale, MDB climate funding has dropped over 11% in 2013 from the prior year, to $23.8 billion.

In line with 2012 trends, 80% of funding is dedicated to mitigation or greenhouse gas reduction measures, and the rest to adaptation—precautionary measures in anticipation of global warming.

EIB spokesman Richard Willis is only slightly worried however. “The weak economy and the cyclical nature of renewable investments are largely behind the decline. In the latter area, investments tend to increase with the advent of next generation technology, and then drop until new technology is developed again,” he explained to EurActiv.

“The understanding that climate finance is key has led to the current stage of good cooperation and sharing of expertise between MDBs, local commercial banks, private businesses, governments, etc.

The challenge going forward, including at the UN summit, is to maintain the momentum to keep attracting investors, including for green bonds, and to work out simple solutions at the global level, for example on the assessment of green projects.

Instilling confidence that projects will be successful both environmentally and financially—including when it comes to shifting from fossil to clean fuels in Africa and elsewhere—is another challenge.”

The UN climate summit will take place on 23 September.

Background

Brussels has sought to lead efforts to curb global warming with more ambitious carbon-cutting goals than any other bloc, but some of its member states, notably Poland, say there is no point in Europe taking the lead when it is responsible for little more than 10% of global emissions.

About 40% of greenhouse gas emissions come from the US, the world's second biggest emitter, and China, which tops the pollution table.

To prepare its negotiating stance ahead of the 2015 talks, the EU executive proposed 2030 climate and energy goals, including a 40% carbon-cutting target. That compares with a 2020 goal to cut emissions by 20% from 1990 levels, which has almost been achieved.

By contrast, the US has said it will reduce carbon by 17% by 2020 compared with 2005, a fall of just 3.5% below 1990 levels.

 

Timeline

  • 23 September: UN Climate Summit
  • 23-24 October: EU leaders are expected to agree the EU climate and energy package for 2030 and recommendations for the 2015 United Nations Climate Change Conference in Paris;
  • 30 November to 11 December 2015: 2015 United Nations Climate Change Conference in Paris to try to conclude a universal climate change agreement;
  • 2020: New climate change agreement would enter into force;
  • 2020: Deadlne for EU to meet binding targets for 20% cuts in greenhouse gas emissions, improvements in energy efficiency, and market share for renewable energy.

Further Reading