Green Growth Action Alliance Calls on Governments to Reduce Risk for Green Investors

On January 21, 2013, the Geneva-based World Economic Forum published The Green Investment Report: The ways and means to unlock private finance for green growth.  The publication is the first report of the Green Growth Action Alliance (G2A2), which was established on June 17, 2012 to increase global investment in environmentally-friendly technologies.  The G2A2 was “welcome[d]” by the Group of Twenty (G20) in the G20 Leaders Declaration released on June 19, 2012.  The alliance has more than fifty members including corporations, environmental groups, and financial institutions, as well as international organizations such as the World Bank, the World Trade Organization (WTO), and the United Nations Environment Programme (UNEP) Finance Initiative.

The report makes the case that as populations grow in the coming years and the demand for infrastructure increases, climate change may jeopardize long-term economic stability unless current and future infrastructure incorporates green technologies.  The G2A2 report finds that while investment in green infrastructure is growing, it is surpassed by investment in facilities with relatively high carbon emissions.  The report warns that “investment . . . must be greened to avoid dangerous levels of climate change and adverse environmental impacts that could erode the benefits from new green developments; if non-green investments continue to grow in parallel with increased investment in green infrastructure, it will not be possible to achieve green growth.”

Rather than proceed under a “business as usual” growth scenario, the G2A2 report calls for governments to implement policies that reduce both investor risk and financing costs in order to generate the additional resources needed to invest in environmentally-friendly infrastructure.  The report makes four major recommendations for governments, policymakers, financial institutions, and investors:

1. “Greening investment, and thereby the economy, is the only option: carbon and resource-intensive growth is simply not a viable growth pathway[.]”  The G2A2 points to a World Bank report issued in November 2012 which suggests that global temperatures could reach 4 degrees Celsius above mid-nineteenth century norms by the year 2100 if carbon emissions continue at current levels.

2. “Transitioning to a green growth pathway is achievable at low cost[.]” The G2A2 anticipates that from now until 2020, meeting global infrastructure demands in economic sectors ranging from agriculture to telecommunications in a “business-as-usual” manner will cost $5 trillion USD per year.  The report estimates that with an additional $698 billion USD per year, infrastructure needs in some of these sectors could be met in a way that limits global temperature increases to 2 degrees Celsius since the Industrial Revolution.  The scenario outlined in the report earmarks the additional resources for environmentally-friendly investments in the following sectors: buildings, industry, transport vehicles, energy, and forestry.

3. “Effective policy pathways and the efficient deployment of public finance to green investment is well understood, tried and tested, and now must be scaled up[.]”  In order to ‘close the gap’ of $698 billion USD per year, the G2A2 report calls for the “targeted use of public finance” to reduce risks and catalyze private investment in green infrastructure.  Specifically, the report calculates that through a combination of financial instruments and policy incentives, public funding in the amount of $116 to $139 billion USD could attract between $558 to $581 billion USD of private investment.  As background, in 2011 public funding for green investment in 2011 totaled $96 billion USD.  To boost private investment, the report calls for policymakers to use tools such as loan, credit, political, and regulatory guarantees; loans issued in the local currency to avoid exchange rate fluctuation; and affordable credit lines.  According to the G2A2 report, “[e]xperience demonstrates the potential for closing the green investment gap by mobilizing private finance through the smart use of limited public finance.”

4. “Investors should seize the green investment opportunity by calibrating risk-return analysis to the current climate in pursuit of long-term returns[.]”  The report’s recommendations conclude by calling on investors to take advantage of opportunities to partner with the public sector and invest in green growth.

Written by Cherie Tremaine, GIELR staff