We need more green investment 我们需要更多绿色投资

We are facing a global double crisis of climate change and Covid-19. Global communities are working on strategies and solutions for Building Back Better in aligning with the Paris Agreement and SDGs. EU has launched the European Green Deal, financing European green inactivates and innovations. European Commission President Ursula von der Leyen proposed a more ambitious climate emission reduction target of 55% and increased green funding in her ´State of the Union` speech. Norfund, the Norwegian investment fund for developing countries, held its annual conference ‘Building Back Cleaner, Greener and Better’ this September, highlighting climate change risk and advocating for greater investment in renewable energy and building climate change resilient communities and companies in emerging markets.

How can we build back better, cleaner, and greener? Here are some thoughts and recommendations:

Climate change must be taken seriously

We need to take drastic steps to cut greenhouse gas emissions, otherwise economic damages will far exceed the cost of prevention. Bill Gates recently wrote an article titled ‘Covid-19 is awful. Climate change could be worse.’ The world bank tells

us that climate impacts could cause an additional 100,000,000 people to fall into poverty by 2030 without urgent climate action. Many countries have declared a ‘climate emergency’ as a result of the temperature records set throughout Europe and North America this year, the worst wildfires on record in the Amazon basin as well as extreme fires in the US, tropical storms and hurricanes becoming more and more severe, and sea levels rising faster than previously thought. The human cost of these events is immeasurable, as are the economic impacts and financial losses.

Crown Prince Haakon said in his opening speech at the Norfund annual conference that “we are all in this [global crisis] together and we have to solve these problems and dilemmas together”. The Paris agreement and SDGs are the critical roadmaps to solving these problems. One of the solutions is clean energy, which can create jobs and at the same time reduce CO2 emissions. 6 months ago, Prince Haakon visited Mozambique and witnessed the positive changes it had brought to Bomilla´s life the moment she got electricity in her home, as a result of a clean energy development project invested in by Norfund. Having access to clean energy and power could be a turning point and make a positive impact on many local households and businesses in these developing countries. It is urgent to provide immediate solutions to poor countries and poor people, who are the most severely affected in the middle of climate and pandemic crises, and ironically, are the ones contributing least to these problems.

Financing of renewable energy projects

Swiftly mobilizing green solutions and boosting climate financing of developing countries is crucial, if the world is going to reach the goal of staying below 2°C. According to Dagfrid Forberg from the organization Zero, it has taken a decade of commitment to subsidize renewable energy to out-compete coal. And we see that coal consumption is declining in the EU and the U.S. There has been an increased flow of capital into unlisted renewables in established markets. Low capital cost is the key to the lower prices of renewable energy in the West. However, existing and perceived risks in emerging markets make the cost of capital needed to invest in renewable infrastructure very high relative to developed markets. For many economies, from a short-term economic perspective, it makes sense to invest in coal. There are currently more than 1000 coal plants under planning or construction internationally, and 90% of them are in developing countries and emerging economies. “If these coal plants are being built, there is no way we can reach the climate target” said Dagfrid at the annual conference, later noting that “risk capital at a sensible price is crucial to lift the renewable energy projects off the ground”.

Although there are high risks, there are also solutions and ways to manage and mitigate risks and still make good profits and impacts. Norfund has managed to deliver a return of 7% per year in the least developed and most challenging markets through their renewable energy investments. KLP made its first investment project in renewables 7 years ago, a solar park in South Africa, with annual profits of 11.5%. We must learn from these examples how to further invest on a large scale.

Local knowledge and local partners

We all understand that we cannot do things alone when the goal is achieving zero quickly. We need to build good partnerships with local governments, and having good cooperation and communication with local teams and people is crucial. Laurence Mulliez, Chairperson of Globeleq, shared her thoughts from a global perspective at the conference: “[it’s] super important to have [a] strong management team locally, people on the ground who understand better the culture and who have all the connections, and who understand the opportunities you can create with your existing assets. It is critical to work with them.” As Mark Davis from Norfund pointed out, getting social and environmental arrangements to work is essential, and from Norfund´s experience, failed projects were those in which they didn’t manage to mitigate social impacts on the ground.

A green finance system

Green finance is the financing of environmentally beneficial initiatives and investments that promote environmentally sustainable activities, as defined by the Green Finance Platform. A more sustainable and greener finance system has been under development for some time now. However, it is not developing fast enough for the world to reach net zero. According to Mark Carney, the governor of the Bank of England, “this is the Tragedy of the Horizon”, noting that “to bring climate risks and resilience into the heart of financial decision making, climate disclosure must be comprehensive, climate risk management must be transformed, and sustainable investing must go mainstream.”

The Task Force for Climate Related Financial Disclosure (TCFD) has created a comprehensive and practical financial instrument for green investments and structured green funds. It has implications for better corporate disclosure of climate-related risks and opportunities, strengthening sustainability tracking and enhancing ESG integration practices. The demand for TCFD disclosure is growing fast internationally. More than 1000 organizations support the TCFD publicly, with their recommendations quickly moving in the direction of becoming the global standard for climate-related disclosures. TCFD disclosure is voluntary at the moment, but there is a distinct possibility that it could become mandatory in certain regions. As Mark Carney said, “the next step is to make disclosure mandatory, as the United Kingdom and European Union have already signaled.”

Better green strategies

Within this context, Norway must improve its understanding and communicating of climate risk, and companies need to develop better green business development strategies, integrating ESG practices and improving climate-related disclosures for risk management. According to DN, Norwegian businesses and industry report very little on climate risk and is far behind competitors abroad. This was based on EY's analysis of Norwegian companies' climate risk reporting, ‘Global Climate Risk Disclosure Barometer 2018’. According to Tellef Thorleifsson, CEO of Norfund, Norfund is committed to avoiding fossil risks, mapping climate risk, and investing more in climate solutions in developing economies. Hopefully this action can serve as inspiration for further initiatives from Norwegian industries and government in boosting green finance and investment in emerging markets.

44 views0 comments