The growing financial investment for transition towards a low carbon economy

This article is contributed by Jovin Hurry, who is reporting from Paris.


“Show me the money” is a common refrain we often hear to bring a pledge to reality, and although we are in the early days of the Paris Climate Summit, voices are demanding that the Paris agreement sends a clear signal that the age of fossil fuels has come to an end and that the dawn of renewables is irreversible, the hard way.

A number of investors are listening and are shifting capital away from fossil fuels and towards clean, renewable energy. Bill Gates and a group of investors have announced the launch of a multi-billion dollar private sector coalition to accelerate clean energy innovation.

The French parliament has also endorsed divestment. Last November, the French National Assembly adopted a resolution encouraging public investors, companies (especially those in which the state owns shares) and local authorities not to invest in fossil fuels anymore. The resolution is the first step to formalizing the policy as law.

Moreover, technology innovation and economies of scale are working together to drive the down the capital cost of renewable energy deployments.

Tom Sanzillo, Director of Finance at the Institute for Energy Economics and Financial Analysis (IEEFA) says about their new report Carpe Diem: Eight Signs That Now is the Time to Invest in the Global Energy Market Transformation that “… the sharp consumption declines in key coal markets is being driven by technological innovation and rapidly falling costs across the renewable and energy-efficiency sectors. Much also is being driven by emerging policies and investment strategies rooted in the recognition that a transformation is under way and now is the time to seize the day.”

The cost of solar continues to decline at a double-digit rate annually, and solar is rapidly moving toward grid parity in an increasing number of markets.

Rapid cost reductions in battery technology will compound the rate of deployment of distributed-energy solutions, further undermining the commercial returns of existing fossil-fuel assets. The declining price of renewable energy will continue, though it will be a long journey.

Investment capital is furthermore moving from coal into renewables. An increasingly sizeable group of financial institutions see the inevitability of rising regulatory pressures, and hence the rising stranded-asset risks of fossil-fuel assets.

Investors over the past decade have put US$1.5 trillion into clean energy, mostly solar and wind. Renewable energy capacity, in the meantime, has grown even faster.

These trends have triggered a considerable shift and growing acceptance in financial market of the structural decline of coal and the demand for raising capacity in low-emissions investments.

Now, the heads of the world’s largest development banks have pledged to work together to substantially increase climate investments and ensure that development programs going forward consider climate risks and opportunities.

In a joint statement released at the 21st Conference of the Parties of the UN Framework Convention on Climate Change (UNFCCC), the African Development Bank (AfDB), Asian Development Bank (ADB), European Bank for Reconstruction and Development (EBRD), European Investment Bank (EIB), Inter-American Development Bank (IDB), and the World Bank Group (WBG) announced their intention to further mobilize public and private finance to help countries reduce greenhouse gas emissions and adapt to climate change.

These six institutions had already delivered US$100 billion for climate action in developing and emerging countries since starting to track climate finance in 2011.

These multilateral development banks (MDBs) pledged to “consider climate change across our strategies, programs, and operations to deliver more sustainable results… we have set goals for increasing climate finance and for leveraging finance from other sources…” These pledges support the US$100 billion a year commitment by 2020 for climate action in developing countries.

“On climate change, the development banks are shifting into high gear,” said Jim Yong Kim, President of the World Bank Group. “We have the resources, we have the collective will, and we have a clear roadmap in the national plans that our clients have submitted ahead of Paris.”

Given that stakeholders often ask for the impact of investments, it is also good to note these MDBs will voluntarily consider the Principles for Mainstreaming Climate Action within Financial Institutions, along with 17 other multilateral, bilateral, national and commercial finance institutions to show their commitment to measure the impact of their work in partnership with others, including the International Development Finance Club.

The World Bank Group further announced that it is making a US$500 million investment to support India’s US$1billion program to improve management of its groundwater. “Poor water management can exacerbate the effects of climate change on economic growth, but if water is managed well it can go a long way to neutralizing the negative impacts,” World Bank Group Vice President for Sustainable Development Laura Tuck noted.

In just 35 years, 40 percent of the global population will be living in water scarce countries, compared to 28 percent today.

Let’s hope that the refrain of showing the money will keep ringing in the ears of those who have the hands on the cash; that they will continue to listen and invest sufficiently and in a timely fashion, simply also because they often than not have their hands on the fate of millions of lives across the world.

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