Capitalizing on the financial power of renewable energy: COP22
As the 22nd Conference of the Parties (COP22) has gotten underway, there is no doubt we are making incredible progress in renewable energy.
Numerous working sessions have taken place and the international climate conference has already triggered riveting, climacteric discussions, including the utilization of standardized carbon pricing to limit greenhouse gas emissions and the reinforcement of index-based insurance for African agricultural businesses impacted by climate change. As we enter the second week of the meeting, it will be interesting to see what conclusions are made by international parties.
Last week, I shared some thoughts about the powerful impact of advanced bioenergy, particularly advanced biofuels, but let’s get down to the core of what I believe will benefit not only the future of bioenergy, but all renewable energy opportunities.
In the spirit of our two-degree Celsius target, two thoughts should be kept in everyone’s minds as we advance the sustainable path forward:
Renewable energy has true capital growth potential.
A renewable future is within our grasp.
As the International Energy Agency’s (IEA’s) recent five-year renewable growth forecast indicates, we are at a turning point for energy efficiency. Renewable sources provided more than half of all energy generation capacity in 2015, with strong work on the electricity and power fronts. Additionally, technological advancements continued to be made around the world in the wind, solar, geothermal and other industries.
As such, we must emphasize one of the true “power” sources that have gone towards each and every one of these renewable energy projects: sustainable investments.
While some hesitate at the thought that significant capital investment may be needed for short- and medium-term opportunities in the renewable energy atmosphere, there is more to it than that. The IEA is anticipating that, if current energy system trends continue, urban primary energy demand will increase by 70% and carbon emissions from energy use in cities will increase by 50%. And so it is now — more than ever — that investment firms can make an everlasting mark.
As of September 2016, Morgan Stanley’s Institute for Sustainable Investing has hit close to $6Bn of client assets in its firm’s Investing with Impact Portfolio. Meanwhile, Goldman Sachs targets $150Bn to finance and invest in companies that promote clean technology and renewable energy, while Bank of America has increased its environmental business initiative from $50Bn to $125Bn in low-carbon business by 2025. These are just a few examples of several financial institutions that are well on their way in channeling investments toward climate change.
Some may argue investors only have strong appetites for long-term project financing when stable cash flows are present, to which I would respond: This is all the more reason to pay attention now, because the future shows a promising, growing market. Already, the need for roughly $90 trillion in investments for the next 15 years has been identified, driven by increased demands for modernized infrastructure, among other factors. Sustainable investments can make a difference.
In 2015 alone, renewable energy set new records for investment and capacity added. Nearly $286Bn worth of investments was made in renewable energy, and, for the first time, 134GW of renewables represented a majority of energy capacity added.
Even more compelling is if we take a step back and realize that, over the past 12 years, more than $2.3 trillion dollars has been committed towards a promising future. Or, as current UN Secretary-General Ban Ki-Moon evinces: We need to create a “level playing field for clean energy investment through carbon pricing, removing fossil fuel subsidies and strengthening stable and predictable regulatory and investment environments.”
The UNFCC Green Climate Fund is leading the path. In 2015, GCF made its first funding decision and as of 2016, advanced economies have agreed to mobilize $100Bn per year by 2020. Last month, African countries met and have proposed nearly 130 low-emission and climate-resilient projects towards mitigating and adapting to climate change. We are well on our way to a growing market.
The climate finance world can be enhanced.
In September, as part of New York’s Climate Week, the Sustainable Investment Forum met and a key topic was the emphasis on measuring and standardizing climate disclosure. Across all industries, parties consistently debated what exactly qualifies products and businesses as “green” and “sustainable,” among other terms. In its 2016 report, Climate Bonds Initiative and HSBC illustrated a $694Bn climate-aligned bond universe in which $576Bn alone were “unlabeled climate-aligned bonds.” Thus, undoubtedly, a low-carbon market exists across a variety of platforms and is growing. The question is: How can we align ourselves to capitalize on this climate market?
Of course, effective work has already been made towards this direction. Common principles were enacted by Multilateral Development Banks (MDBs) — including the World Bank — and the International Development Finance Club (IFDC) as to what qualifies as “climate friendly” and ways to track financial commitments. In May 2016, the UN’s Subsidiary Body for Scientific and Technological Advice (SBSTA) proposed clarifying the parameters around “climate-specific” and “financial instrument,” among other terms, in preparation the Paris Climate Agreement’s enactment. And just days ago, World Bank announced that it has raised $500M in green bonds to support financing of climate action, including the launch of $100M worth of green bonds purchased by the Central Bank of Morocco. Amazing!
Yet, it would be great to see if additional common ground has been hit upon at this year’s COP22. Can components of the financial markets be further defined?
There are exponentially more points to this, I am sure, and this is but a snapshot of the profound work that is being done by countless individuals across the world. However, I am of the mindset that, under the guidance of the UNFCC and all involved parties, this is the time to sharpen our objectives. We have locked in our targets. Now, let’s continue focusing on how to carry through on our promises, from implementing nationally appropriate mitigation actions to elucidating measurement, reporting and verification metrics.
Clearly, countries are stepping up their game. Companies are paving the way. Individuals are taking action. So let’s keep the spirit going — I encourage investors, regulators and others to keep focused. Or as Novozymes’ Head of Corporate Sustainability Claus Stig Pederson so eloquently says, “With all the global challenges today, we need more companies to rethink tomorrow,” and it can start with each of us. Put your (biodegradable) stake in the ground, because we are but at the beginning of extraordinary, momentous change.
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