Seeing Green as the new investment

It is estimated that the world population will increase by 3 billion people in 2050. Meeting the energy demands, while respecting planetary boundaries, will be a tall order. By 2050, water usage is estimated to increase by 55 percent. Agricultural production will double and unless cultivation practices change, this will lead to large-scale deforestation. If left unchecked, energy demand will increase by 85 percent. This will lead to a rise in global average surface temperatures by 4-6°C, which in turn, will lead to extreme heat-waves, natural disasters such as hurricanes and life-threatening rises in sea levels.

Based on their own research and those from leading institutions,The Green Investment Reportby the Green Growth Action Alliance has drawn out key recommendations for preventing and dealing with these outcomes

Green investment as the only option

To support a future global population of 9 billion people, an estimated US$5 trillion a year needs to be invested in global infrastructure. In order to limit climate-change temperature increases to 2°C above pre-industrial levels, an additional investment of US$0.7 trillion annual is required. This investment is needed for clean energy infrastructure, low-carbon transport, energy efficiency and forestry.

Major increases in natural resource productivity and reductions in carbon emissions are necessary to sustain economic growth. G20 leaders should continue to affirm that greening the economy is the only route to sustained growth and development.

Closing the gap

The gap between current investment flows and what is needed to achieve sustainable growth can be minimised and eventually eliminated. However, the cost of inaction greatly outweighs that of greening growth.

In order to speed up the green growth transformation, governments, investors and international organisations must improve their efforts to overcome barriers and improve global tracking, analysis and promotion of green investment. This can be further extended into the agriculture, water and transport infrastructure sectors, helping the transition become more financially viable.

Mobilising private finance

Effective policies and efficient deployment of public finance to green investments must now be scaled up. Fossil fuel subsidies must be phased out by the G20 governments in order to make way for the creation of long-term carbon price signals, enabling greater free trade in green technologies and growing investment in climate adaption.

In order to stimulate growth within the private sector, investment-grade public policy is an important prerequisite. Public financial institutions will need to play a more active role as well, through engagement of private investors. For example, if public service investment can be raised to US$130 billion, this could potentially mobilise private capital of US$570 billion, thus achieving the US$0.7 trillion investment required.

Leadership is key

Greening the remaining US$5 trillion will require policy reform and investment-grade policy. Instead of depending on public policies to eliminate or reduce risk, private investors can enhance comparative risk analysis of green investment by taking advantage of investor forums and engagement with public finance agencies to find new financing solutions that will create an attractive and sustainable market. Attractive long-term, risk-adjusted returns are some of the gains green infrastructure investment can provide.

Green Growth Action Alliance (G2A2) works in close collaboration with G20 and various governments. G2A2 are a public-private partnership among over 40 energy companies, banks and development finance institutions. The full report can be downloaded here. It was first published on 21 January 2013.

By: World Economic Forum (WEF)