Private finance can drive the energy transformation needed to meet global emissions goals if backed by the right government policies, according a group of institutional investors in Australia and New Zealand with combined funds under management of $1 trillion.
Nathan Fabian, CEO of the Investor Group on Climate Change, says investors and financiers are allocating more capital to clean energy and less to fossil fuels.
However, he says government policies are not keeping pace, with misaligned regulations and incentives blocking the flows of low carbon capital.
Fabian, writing in a comment article in the influential international scientific journal Nature, says funds managers are concerned about the risks posed by climate change.
“Countries that understand these dynamics will benefit from more private financing and clean growth,” he says. “Those that do not will be left squeezing the last remnants of value out of waning industries.”
With about $300 trillion of assets managed globally and more than $20 trillion a year available for new investments, private finance is capable of funding the global transformation to a low carbon economy the world needs.
“Banks and investors increasingly see climate change as a raft of risks that they must respond to directly rather than waiting for governments alone to fix,” Fabian says.
“For example, by early 2015, nine international banks had chosen not to invest in the development of the Carmichael coal mine in Queensland, Australia, which is part of one of the largest coal basins in the world.
“Leading financiers are also under public pressure to manage risk more carefully.”
Fabian supports some form of emissions trading.
“Carbon pricing is a tool that markets understand,” he says. “Emissions trading schemes, carbon taxes or any other mechanism that applies a cost to releasing greenhouse gases are the best ways to distribute the burden of emissions reductions, encourage the market to innovate and achieve abatement cheaply.”
He says money is mobile and will move to where it will do the most good.
“Energy feed-in tariffs and renewable-energy targets remain under threat in Australia, whose emissions-trading scheme was repealed in 2014,” he says. “Financiers now question the economic credentials of such governments. Convinced of the benefits of low carbon investments, they will increasingly take their money elsewhere.”