ON CLIMATE CHANGE INVESTING

Clean tech funding: Balancing the risk
Rikki Stancich, 28 October 2010 (CSP Today)

"According to the World Bank, roughly US$8 billion per annum is being invested in clean tech in developing countries – where climate change mitigation technologies are most needed…[B]ut as much as US$210 billion is required annually if these countries are to mitigate and adapt to climate change…[W]hile the willingness to invest in clean tech is certainly there (particularly via the bond markets, through fixed-income instruments like Green Bonds), investment is being held back by a major factor: regulatory and political uncertainty…

"…[T]he majority of clean tech investment must take place in developing countries, where unstable legal and political frameworks create a high-risk environment for investors…[W]hile North African countries have a better investment reputation than their Sub-Saharan African counterparts, they still present significant risk…Similarly in developed countries, on-going long-term regulatory uncertainty surrounding climate change and renewable energy policies is a significant deterrent to investment…Spain’s recent performance on tariff price setting certainly provides a model of how not to win investor confidence…[No countries have managed] to find the right balance…The UK [may be] the closest…"

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"…[Financiers have] concerns over the longevity risk of long-term clean tech investments…[T]he answer to this problem is to create an alignment of interest between policy makers, who control the degree of [regulatory] risk and investors, who bear the cost of this risk…To some extent, the UK government is addressing this issue through the creation of a Green Bank…[I]nsurers also have a greater role to play in de-risking long-term renewable energy financing…

"An additional major factor hampering renewable energy and clean tech investment is economic volatility. Recent economic volatility combined with the failure of the Copenhagen accord has discouraged clean tech investment in the last 18 months…[and] the failure of the Copenhagen accord was a direct result of the economic downturn…"

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"Governments continue to mull over policy mechanisms such as cap and trade and pollution taxes as a means of curbing emissions and creating demand for clean technologies. Yet, financial instruments such as green bonds hold significant promise for encouraging investment into clean tech. What is more, demand for green bonds is growing…

"…[A] middle ground needs to be established where risk is borne across both private and public sectors, and where regulatory frameworks and market forces compliment each other to stimulate greater investment into riskier, clean technologies."