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The Need for Investor Capital – Governments Alone Cannot Cover the Cost Of Addressing The Climate Crisis

In October 2018, the IPCC released a report concluding that the world has until 2030 to radically reduce global carbon emissions or face the worst consequences of irreversible and cataclysmic climate change.

As agreed at the Paris Climate Agreement in 2015, this means mitigating global warming to a maximum of 1.5°C above pre-industrial levels.

The cost of such a great transition will not be cheap. To tackle the climate challenge effectively and sustainably requires the full delivery capacity of the market economy.

The IPCC estimates that for a 1.5°C trajectory annual average investments in low-carbon energy technologies and energy efficiency need to be upscaled by roughly a factor of six by 2050

To meet the U.N.’s Sustainable Development Goals, The International Energy Agency has estimated that $13.5 trillion of public and private investment in the global energy sector alone will be required between 2015 and 2030 to meet Paris Agreement targets. Governments alone cannot foot this bill.

Governments around the world lack the resources to meet the challenges of climate change on their own, and so responsibility is increasingly falling to the private sector and investors.

The market response to this stimulus has been notable. A recent report from the Global Sustainable Investment Alliance found that the sustainable investment market had grown by nearly a third in two years, with worldwide assets exceeding $30 trillion as at 31st December 2018 – up 34% since 2016.

Why The UK Is Perfectly Placed To Seize The Opportunities Presented By A Transition To Zero Carbon

The UK’s transition to ‘Net Zero’ economy opens up huge opportunities for
business and finance.

With strengths across the full financial services spectrum, deep pools of capital, and a leading track-record on environmental policies, the UK is uniquely placed to capitalise on the commercial potential arising from the global energy transition.

At the heart of the finance sector of the City of London lies the Gherkin
The global financial services provided by the City of London and Canary Wharf put the UK in a strong position to become a leader on climate mitigation investment

Since 1990 the UK economy has grown by two-thirds while reducing carbon emissions by over 40%, the strongest performance of any G7 country.

Since 2010, there has been more than £92 billion invested in clean energy in the UK.

The UK’s position as an international financial centre means the leadership we demonstrate in low carbon infrastructure investment can have a wide-reaching global impact.

Increased demand for green and climate-resilient investments will drive the supply of new innovative products. The UK’s reputation for financial innovation and its ability to create and develop new ideas provides a key opportunity for UK firms to first innovate and then mainstream green products and services.

The Inevitable Growth Of The Low Carbon Economy - Providing Certainty For Investors

By one estimate, the Low Carbon economy in the UK could grow 11% per year between 2015 and 2030 – over FOUR TIMES FASTER than the rest of the economy.

Much of this growth will be determined by UK Government policy by putting in place clear, binding targets to accelerate the decarbonisation of the economy. For example, in addition to becoming the first country in the world to pass legislation aimed at limiting carbon emissions to net zero by 2050, the UK has also recently passed new ‘Minimum Energy Efficiency Standards’ (MEES) which will ensure that by 2030 all rented properties have an EPC of at least a C.

This is great news for business and great news for investors as it lays a clear pathway to where we can expect to see considerable market growth.

To meet the UKs legally binding climate change objectives will require unprecedented levels of investment in green and low carbon technologies.

Although initially slow to gain traction, a whole new investment market is gathering pace to meet the growing demand for green investment.

A combination of people power, government policies, and economics has given rise to a thriving, and eminently inevitable, industry for environmental products and services.

Welcome to the age of impact investing.

Why Impact Investing Can Mobilise The Might Of Capital Markets

With governments and businesses responding to growing public pressure to reverse ecological degradation, a distinct and attractive group of environmental equity investors has emerged.

Demand for green finance from consumers, investors, and governments is expected to grow substantially over the coming decades.

Investors are increasingly concerned about the issues they care about and want their investments to reflect their values.

In response, there has been significant growth in the number of companies that combine strong environmental credentials with innovative products and services designed to safeguard the world’s natural resources.

Capital Finance and Impact investing BHESCo Investment Page Screenshot
In response to rising investor demand there has been a proliferation of investment opportunities that combine meaningful environmental action with attractive financial performance.

Impact investing provides an opportunity for investors to align their financial ambitions with their personal values, as well as contributing to the UN’s Sustainable Development Goals.

Impact investing seeks to bring together the investor community to develop innovative and shared approaches to addressing the challenges facing our world today.

Historically, impact investment consisted of institutional investors and high net worth individuals, with little access available for general public.

Today, impact investing has become one of the fastest growing areas of investment, attracting a wider set of investors than ever before.


The nature of investment over the coming decades will determine the future of our climate, the natural world and the resilience of our communities.

It also presents a substantial opportunity for investors.

The threats posed by climate change and environmental degradation affect all areas of the UK economy and present many difficult challenges, in addition to offering many important opportunities.

Consideration of the financial risks and opportunities presented by climate and environmental factors needs to move beyond ‘corporate social responsibility’ to become a financial and strategic imperative and normalised as good business.

It is vital for investors to mitigate their risk by diversifying investment portfolios to include UK based renewable energy and energy efficiency projects.

London_Blackfriars_Station - Finance Solar InfrastructureLondon_Blackfriars_Station - Finance Solar Infrastructure
Blackfriars Bridge in London - an example of large scale infrastructure projects that are presented by the transition to a low carbon economy

There can be no doubt that the cost of transitioning to a zero carbon economy is huge, but there is also no ignoring the fact that the potential rewards are phenomenal and can fundamentally reshape society as we know it.

The transition to a clean, low carbon economy can help give us towns and cities with cleaner air and warmer homes with lower bills while growing our economy and supporting thousands of new jobs in emerging low carbon industries.

We believe that investor capital has the power to catalyse this transition, whilst delivering strong financial rewards for investors at the same time.

To quote Bank of England Governor Mark Carney: 

The task is large, 

The window of opportunity is short, 

And the stakes are existential.

Sources

https://www.ifamagazine.com/issue-00/

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/820284/190716_BEIS_Green_Finance_Strategy_Accessible_Final.pdf


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