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Climate change crisis outpacing green investment

Fossil fuel infrastructure cited

climate reports that sustainable investors, more than most of the major stakeholders in what it calls the “rapidly unfolding climate change crisis,” want corporations to account for unsustainable business practices and advocate effective legislative and regulatory measures.

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 The 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, according to SocialFunds reporter Robert Kropp..

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 investment."

About $5 trillion per year through 2020 is required under a business mainstream scenario to promote global development. But that amount will not 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.

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 risks."

Bottom line: The report warns, "To ensure growth is sustainable, an unprecedented shift in long-term investment is required from conventional to green alternatives."

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