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Green shoots

14 December 2015 By Antony Currie

This weekend’s climate change deal in Paris gives investors the green light to invest ecologically. The agreed goals are laudably ambitious. While scepticism over the 195 countries’ ability to hit them is warranted, the accord should encourage everyone from venture funds to debt and equity investors to stump up more capital.

Keeping the rise in global temperatures well below 2 degrees Celsius, as agreed, sounds like a tall order. The world is still heavily dependent on oil, gas and coal, and states could backtrack. But the private sector has a chance to step up, since the accords offer precisely the kind of longer-term framework that’s attractive to institutional investors and corporations planning for the future.

There will be plenty of opportunities. Bank of America Merrill Lynch analysts reckon $13.5 trillion in new low-carbon investment may be needed by 2030 – implying a significant increase on the current $650 billion a year.

China alone has said it needs $6.6 trillion to meet emissions pledges. Public money is likely to be limited – state coffers can fund only about 15 percent of the country’s green investments over the next five years, the central bank says. So with the Paris signatories only agreeing to provide $100 billion a year to all developing countries, that’s a potentially huge opportunity for all manner of private capital.

The other good news is that even modest investment can make a difference. For example, energy use in wastewater treatment is so inefficient that CO2 emissions could be halved using current technology, according to water infrastructure firm Xylem. And since almost all the upgrades would turn a profit or at least break even, utilities could bring in bond investors to help fund the improvements.

There are similar stories in many other industries. Auto manufacturers could use driver-assist technology and better tires to cut fuel consumption. Builders could lop emissions by 28 percent using already available technology that would more than pay for itself, McKinsey says. That could make a huge difference to emissions in poorer countries. And so on. Paris should be just the beginning of a wave of eco-investment.


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