Investors driving positive change

At the end of 2015, 174 countries and the EU signed the Paris climate change deal at COP21, pledging their commitment to tackling the negative effects of climate change. The wheels were in motion and the groundwork in place for governments to create new legislation and policies to attract investment in renewable energy sources.

A year on, and the outlook – on paper at least – seems less optimistic. The COP22 conference in Marrakech on November 7-18, was shrouded in uncertainty in light of recent political developments in the UK and the US. The energy industry waits with baited breath – what will the future hold for a progressive, healthy energy mix across the globe?

It is hoped that COP22 can inspire and educate more investors to be more ‘climate aware’ as they diversify their investment portfolios

But while many discussions have focused on the future of the US’s commitment to the Paris agreement, it needn’t all be doom and gloom. In fact, many of the talks at the COP22 conference looked at how wealthier nations can support developing nations with financial aid in the adoption of renewable energy alternatives – putting climate finance firmly on the global agenda.

This is key. Raising awareness about the importance of stronger investment into climate change solutions will be paramount in the global fight against climate change. 

In 2014, the Australian government announced the delivery of AU$200m (£117m) to the UN’s Green Bank. Such a move sent a clear signal of the country’s commitment to support a greener economy. Moves like this can help create a positive investment climate for those looking to invest in climate change solutions such as solar photovoltaics, onshore wind and commercial energy storage.

Investors have the power to drive positive change by divesting from fossil fuels, and reinvesting into renewable energy sources.

This doesn’t just help to mitigate the negative effects of climate change, but can also present strong returns. Such investments are typically long term and inflation-linked. A vast amount of climate change solutions are infrastructure projects and often wrongly placed as part of the private equity industry.

Finally, and most importantly, such investments are proven and credible. Wind and solar power, for example, have been around for at least 20 years, generating electricity to power thousands of local homes and communities.

It is hoped that COP22 can inspire and educate more investors to be more ‘climate aware’ as they diversify their investment portfolios. The climate-savvy investor of the future will realise the true potential of alternative energy sources to shape our future for the better, and make sure that the financial markets will cease to be dominated by the oligarchs of oil and fossil fuels.

Such investors are also far more likely to be influenced by the investment decisions they make at home. For example, if they can see the savings made by having solar panels at home, they may be more incentivised to invest in energy storage at scale, for example.

While investors can help the fight against climate change, they cannot do it alone. Now more than ever, strong leadership and collaboration is needed to keep the promise of Paris’s COP21 alive.

As one of the most competitive financial centres in the world, London is poised to become one of the leading capitals for climate finance but more must be done. 

Take the Montréal Carbon Pledge. In 2014, this pledge – a commitment from the UN’s Principles for Responsible Investment to measure and disclose the carbon intensity of the whole investment portfolio of global members – was launched after pressure from major pension funds and institutional investors such as the Rowntree Charitable Trust. It is evident, then, that the investment community has the power to effect change – and even change policy. 

Looking ahead, COP22’s legacy may be dampened by recent political shifts in the West, but the renewable energy industry must find ways to clearly and confidently weather the policy uncertainty that is to come.

The private sector, including the climate-savvy investors, can lead the charge in driving investment into renewable energy sources, while also enjoying the robust returns that come with them. The road ahead must be one of collaboration, with investors and policymakers working together to create a positive investment climate, which will in turn help to tackle the global issue of climate change.

Juan Martin Alfonso is chief financial officer at Low Carbon