Money talks

What’s holding back that big shift to low-carbon investment? It’s time to put heads together to find a way forward, says Dax Lovegrove.

The finance sector is uniquely placed to help set the world’s carbon dioxide emissions cuts on the right trajectory. Yet we’re acutely aware at WWF that there hasn’t yet been a major shift from high to low-carbon investments, and too many big players are still ready to invest in carbon-intensive projects such as Canada’s Alberta Tar Sands and the Kingsnorth coal plant.

Just this year an internal review at the World Bank concluded that the institution was not yet managing the environmental effects and carbon impacts of its project finance activities, and found “a persistent lack of environmental focus in each step along the lending chain”.

Over in the US, too, the sector is slow to exploit the potential of low-carbon finance. Earlier this year the Department of Energy admitted that $38.5 billion earmarked for loan guarantees on cleantech companies was “gathering dust” because it wasn’t being tapped into by investors and entrepreneurs.

We think it’s time to push the boundaries in the financial sector. Of course we’re continuing to call on the government for policy change – a strong UK Climate Change Bill, a robust phase III of the European Emissions Trading Scheme and a watertight post-Kyoto global deal – but we need to ensure that investments are reaching the right place.

We know that pressure from the outside isn’t the only way to move things forward, which is why our sustainable finance programme is convening major players, including businesses and policy makers, to actually identify the systemic barriers to economic reform.

A bank would probably say it’s to do with weak policy signals: ‘You can’t expect banks to shift investments until policy intervention gives us the certainty we need to ensure a decent return.’ A socially responsible investor would maybe blame intellectual inertia: ‘Mainstream investors know how to play the game in reading OPEC signals and financial statements from the big oil companies. But renewables are still unfamiliar territory – a new system they’re simply not geared up for.’ Others in the financial community might say that low-carbon technologies are unreliable and therefore high-risk investments…

We want to bring all these opinions round one table, so that we can start to find a way forward together. We believe that it’s time for some creative solutions to unlock the financial opportunities offered by areas such as cleantech. As the US Department of Energy’s Andy Karsner put it at the San Francisco Cleantech Forum in February: “We need disruptive thinking and organisational means and mechanisms to scale these technologies.” That’s going to mean a whole new approach on the part of risk analysts and investment advisors, even a new skill set.

We at WWF don’t claim to have all the answers – indeed that’s the whole point of our work with the financial community. But we imagine some of the solutions might include getting leading banks, asset managers and institutional investors to build greater capacity within their organisations to support staff in these areas, or to draw up a simple list of no-go areas for new investment.

What we do know, however, is how urgent the situation is. Our report on climate solutions for 2050 states that to start making the sort of reductions in carbon dioxide emissions in line with the latest climate science, we have a window of opportunity of just five years.

13 October 2008

Dax Lovegrove