February 08, 2013
Climate Change Outpacing Green Investment
by Robert Kropp
A report from the World Economic Forum outlines the steps necessary to encourage the unprecedented
shift in investment strategies that is necessary for sustainable growth.
More than most of the major actors in the rapidly unfolding climate change crisis, sustainable
investors have sought to call corporations to account for unsustainable business practices and
advocated for effective legislative and regulatory measures. In large part as a result of the
efforts, assets allocated to sustainable investment strategies have continued to increase
throughout the past decade.
In the US, a noteworthy development identified by US SIF: The Forum for Sustainable and Responsible
Investment in its 2012 Report
on Sustainable and Responsible Investing Trends in the US has been the growing number of money
managers "using positive or inclusionary strategies or ESG (environmental, social, and corporate
governance) integration" in their investment strategies. As Cary Krosinsky wrote in his foreword to
Evolutions in Sustainable Investment: Strategies, Funds and Thought Leadership, "Take a purely
values-based approach, and you risk missing the very same practical opportunities in eco-efficiency
and innovation, where the sustainability we require will come from."
screening remains the primary investment strategy in the US. Meanwhile, as a new report from the World Economic Forum (WEF) points out,
"Greenhouse gas (GHG) levels are rising amid growing concerns that the world is moving beyond the
point at which global warming can be contained within safe limits."
The report, entitled
Green Investment Report - The ways and means to unlock private finance for green growth, warns,
"Investment-grade public policy is an important prerequisite to engage the private sector." It has
been estimated that private investment will have to account for as much as 85% of the transition to
a low-carbon economy. "Public financial institutions need to more actively engage private
investors," the report states.
The report does record some developing success stories,
albeit on a small scale, in the public financing of such a transition. Developing nations, many of
which are expected to be hardest hit by climate change, have been scaling up their green
investments at a rate that significantly exceeds that of the member nations of the Organization for
Economic Co-operation and Development (OECD). "Clean-energy asset financing originating from
developing countries in 2012 is on track for the first time to exceed those originating from
developed countries," the report states, noting that most of the financing has been encouraged by
Globally, however, "Progress in green investment continues to be
outpaced by investment in fossil-fuel intensive, inefficient infrastructure," according to the
report. "Legacy fiscal measures such as fossil-fuel subsidies combine with the slow progress of
international climate negotiations to weaken market signals that might otherwise incentivize green
About $5 trillion per year through 2020 is required under a business-as-usual
scenario to promote global development. But even that amount will not be sufficient to effectively
address climate change. To limit the global average temperature increase to 2°C above
pre-industrial levels, an additional $700 billion per year will be required.
evidence demonstrates, however, "that the targeted use of public finance can scale up private
financial flows into green investment through measures such as guarantees, insurance products and
incentives, combined with the right policy support," the report argues. "There is strong potential
for increased lending, advancing and rolling out de-risking instruments, using carbon credit
revenues, and targeting grant money combined with technical assistance to attract much greater
However, private investors are not off the hook until such time as
perfect government policies are in place. They need to take a new approach, the report advises.
"Private investors do not need to wait for public policies or subsidies to remove all material
risk," the report states. "The rapid pace at which green solutions are developing is an ideal
opportunity for investors to enter a growing market."
Citing the recently formed Global Investor Coalition on Climate
Change, an international coalition of climate change investor networks, as a potential source
of leadership, the report argues that a more explicit factoring of climate change into long-term
investment strategies could help unlock greater private investment in a green economy.
With $71 trillion in assets under management, pension funds and other institutional investors
have important roles to play in the transition to a green economy. "Successfully mobilizing
institutional funds in equity injections can be achieved through complex financial engineering by
providing the investor with a 'quasi fixed-income position,'" the report states. "A fixed-income
position can provide the investor with long-term returns in line with their investment strategy and
Nevertheless, the report warns, "To ensure growth is sustainable, an unprecedented
shift in long-term investment is required from conventional to green alternatives."