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Where is all the Capital for Green Energy?

Report by Alastair March for Bloomberg Green

By Alastair Marsh
The dam holding back net zero
The “wall of capital” that was supposedly coming to finance the global energy transition has proven to be more of a dam, holding back most of the cash that was promised.More than $150 trillion of private-sector assets have been committed over the past 18 months to zeroing out finance sector emissions via the Glasgow Financial Alliance for Net Zero (GFANZ). However, just a fraction of that money has been used to address the growing climate crisis.Read More: How a Flawed Climate Deal Emerged From COP Chaos

To reach net-zero emissions by 2050 and limit global warming to 1.5C, investment in renewable energy sources needs to surpass finance flows to fossil fuels by a factor of four over the next decade, according to research from BloombergNEF. Last year at COP26 in Scotland (which was effectively a launch party for GFANZ), then-UK Chancellor of the Exchequer Rishi Sunak hailed the “historic wall of capital for the net-zero transition.” But while the assets of GFANZ members are well above the estimated $100 trillion needed for the transition, there are no guarantees the funds will be deployed in climate-friendly ways—either today or in the future.There are a few reasons why.First, the assets are tied up in existing investments so there will have to be a process of portfolio rebalancing to shift funds.Second, while bankers and policymakers talk up so-called concessional or blended-finance structures, progress has been slow. Among the proposals have been deals in which public-sector entities provide guarantees or remove some risk associated with allowing private-sector investors to devote large sums to emerging economies—where funds are needed most. Third, an oft-repeated reason from the financial sector for the slow pace of assets flowing into climate-positive initiatives: They say there simply aren’t enough projects suitable for investment.This third claim was assailed in a new report published by the two leaders of the United Nations’ Race to Zero campaign. The report, issued for “finance day” at COP27,  said developers of clean energy and climate-friendly projects—especially those in the emerging world—are ready to go. But they are “struggling to secure investments from potential financiers,” while would-be investors “criticize a paucity of investable projects.”

A series of investor forums were convened between August and October to demonstrate the existence of a meaningful pipeline of investable opportunities. Despite the financial industry contention that there’s nothing to spend money on, the forums came up with more than 100 projects that require $120 billion of financing.

To make the point more forcefully, an extended compendium of projects highlighted prospective investments from El Salvador to Uzbekistan. They include an $800 million crop-adaptation project in Egypt’s Nile Valley and Delta; a $7 billion bio-refinery deal in Panama; and the $5.8 billion financing of what will be Nigeria’s biggest power plant, a hydroelectric facility being developed on the Dongo River. It’s worth noting that blended finance was a key topic last week at COP27 in Sharm El Sheikh, Egypt. And GFANZ announced last Tuesday that some of its members will support a so-called Just Energy Transition Partnership to provide $20 billion of funding—half from public sources and the rest from the private sector—to assist Indonesia in reducing fossil fuel use and ramping up renewable energy.This is just a drop in the bucket given what’s needed, though it could provide a high-profile test case of how bank finance really can accelerate the transition. For Mark Carney, the former Bank of England governor who co-chairs GFANZ (along with Michael R. Bloomberg, founder of Bloomberg News parent Bloomberg LP), focusing on potential investments is definitely the right approach. In an interview at COP27, he said investors should be looking at a different “wall.” “The smart money” is following “an absolute wall of opportunity in just rolling out clean energy at scale,” Carney said.Sustainable finance in briefAre all efforts to cut greenhouse gases good? Not necessarily say critics of a new commercial aviation industry initiative. Airliners burn jet fuel and pour CO2 into the atmosphere, but the industry claims it’s stuck since biofuels are too expensive. So airports, regulators and carriers have united to instead reduce emissions around airports with cutting-edge tech that gets planes on the ground faster. The catch is that the strategy will cut just a small fraction of airline emissions. A worse case is that it will be used to avoid devoting more resources to biofuels. And the worst case, industry watchers say, is that the initiative is a greenwashing ploy to attract more passengers while enabling a larger number of planes to fly—and thus causing more emissions than was the case in the first place.An Airbus SE A380-800 Emirates plane on approach at Toronto Pearson International Airport Photographer: Brent Lewin/BloombergFor more than a decade, Credit Suisse Group AG has claimed to be “carbon neutral” in its operations. A closer look at the Swiss bank’s sustainability reports however tell a different story.The revival of fossil fuels in European energy policy, a byproduct of Vladimir Putin’s war on Ukraine, risks triggering the first wave of financial penalties in the global market for ESG bonds.A fiery attack by former US Vice President Mike Pence. A first-of-its-kind law in Idaho taking aim at ESG. Similar bills expected to be introduced in red states next year. These anti-ESG moves all have one man in common.ESG investors holding on to so-called FAANG stocks with the hope that 2023 will right some of this year’s wrongs may be in for a nasty surprise.Bloomberg Green publishes Good Business every week, providing unique insights on ESG and climate-conscious investing.
Fossil fuel frenzy$300 billionThat’s the global bank lending that went to fossil fuel companies in the first 9 months, a 15% increase on the same period of 2021.
Making it credible“For net zero initiatives like GFANZ to work well, they require credibility beyond the initial commitment and fanfare.” Rebecca SelfSeawolf Sustainability ConsultingDiscussing why transparency, verification and routine reporting are key to ensuring pledges become reality.
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