This is for all of you math whizzes and Sudoku geniuses out there. You know who you are – folks who are good with numbers:
If the world needs to invest $44 trillion into clean energy by 2030, how much must we invest per year over the next 36 years?
Okay, you caught me. It is not a complicated equation. But maybe it got your attention.
Much has been written, some of it here on my own blog, about the urgent need for an additional $1 trillion per year to be invested in clean energy over the next 36 years. Many of us have taken to calling this the “Clean Trillion” because, when we talk about clean energy finance as a simple math equation, it becomes easier to envision what it will take to get there. I’ve been on the road a lot this summer talking to dozens of financial institutions, policymakers and corporate executives about the concept of the Clean Trillion and they have all asked me the same question: ‘Where, exactly, is this trillion dollars supposed to come from?’
Currently, the top providers of capital to clean energy are primarily commercial banks, national and multilateral development banks and electric utilities. These investments are critical, but won’t be enough to quadruple global clean energy investment from its current level ($254 billion in 2013) by 2030. If the world is to avoid the potentially catastrophic environmental and economic impacts of climate change that scientists predict, the simple fact is that clean energy projects need new sources of capital.
The largest potential providers of this capital include institutional investors such as pension funds, insurance companies, sovereign wealth funds, endowments, foundations and investment managers, who collectively manage about $75.9 trillion in assets. Current clean energy investment levels by these institutional investors, however, are quite low. In fact, only $22 billion of total clean energy asset finance (or less than 2.5 percent) came from pension funds and insurance companies from 2004 to 2011.
The good news is that opportunities for investors exist today, and many are already acting on climate change in a variety of ways. Zurich Insurance, for example, is investing $2 billion in green bonds – and the market is expected to hit $40 billion by the end of this year. Earlier today, the California State Teachers’ Retirement System (CalSTRS), one of the largest U.S. pension funds, announced plans to nearly triple its clean energy investments, to $3.7 billion, in the next five years
So we know there is significant capital available to be directed toward clean energy, and that a number of opportunities already exist for investors. What is preventing this capital from being deployed toward the Clean Trillion?
There are a number of barriers and roadblocks, many of which are explored in detail in the report, Investing in the Clean Trillion: Closing the Clean Energy Investment Gap. But one of biggest hurdles institutional investors face when it comes to investing in clean energy is the lack of a global climate deal. In other words, they need the right signals from national and international policymakers in order to invest more in clean energy and scale up existing efforts.
Next week, the UN Secretary-General is convening a Climate Summit at the United Nations to spur climate action and facilitate a global climate agreement in 2015. A strong climate deal would send a strong economic signal, stimulating more investment in favor of low-carbon alternatives.
That is why yesterday nearly 350 global institutional investors representing over $24 trillion in assets called on government leaders to provide stable, reliable and economically meaningful carbon pricing that helps redirect investment commensurate with the scale of the climate change challenge, as well as develop plans to phase out subsidies for fossil fuels.
The statement recognizes the role investors play in financing clean energy, outlines the specific steps they are committing to take, and calls on policymakers to take action that supports, rather than limits, investments in clean energy and climate solutions.
The investor groups also published a report, describing examples of action being taken by investors that support a low carbon, climate resilient economy. While we know, of course, that ambitious policy is required in order for low carbon investments to be brought to scale, these examples demonstrate that investors are already acting on climate change. These activities include direct low carbon investments, the creation of low carbon funds, company engagement, and reducing exposure to fossil fuel and carbon intensive companies.
In addition, the investor groups have launched a public online database of low carbon investments made by asset owners. The Low Carbon Investment Registry identifies how institutional investors are directing capital towards low carbon assets. Asset owners around the world will be encouraged to add examples to the Registry leading up to the climate negotiations in Paris.
It is significant that the largest institutional investors from around the world are in agreement that unmitigated climate change puts their investments at risk. Next week, the financial community will unite in a call on government leaders: financing the low carbon transition is possible – and we need your help to get there.
