An increasing number of corporations, financial institutions, and foundations are making headlines with bold initiatives and investments focused on mitigating climate change. Is this just about positive public relations? I would argue that it is about much more than that.
Examples in the for-profit sector
Wells Fargo has committed US$30 billion to environmental investments by 2020. If you thought that was impressive, consider Citigroup’s target of US$100 billion invested over the next 10 years to “lend, invest, and facilitate finance activities that reduce the impacts of climate change and create environmental solutions that benefit people and communities.” Some of these investments are likely not far from their core financing activities. Others are a stretch from business as usual and will likely produce more ways to put capital to work (e.g., solar project finance) as well as better branding.
These two financial leaders are not alone. The Investor Network on Climate Risk, organized by Ceres, is a “network of 100 institutional investors representing more than $13 trillion in assets committed to addressing the risks and seizing the opportunities resulting from climate change and other sustainability challenges.” In a related effort, the U.S. Department of Energy has created the Solar Access to Public Capital working group, which includes 300 prominent finance and business organizations collaborating to increase public capital markets’ financing of solar energy projects. In addition, over 1,300 investors and financial sector companies have signed the United Nations Principles for Responsible Investing. While the focus of these principles is not proactive environmental investments, they represent a growing awareness in the financial world of its impact on and opportunities in projects with environmental benefits.
Examples in the not-for-profit sector
Consider the University of California’s recent US$1 billion commitment to fight climate change. While the university is surely motivated by its mission and the values of its constituents, this announcement is part of an overall strategy to better integrate ESG (environment, social, governance) criteria in its investment decision making as a way to mitigate risks and optimize its portfolio returns.
Foundations also have a significant role to play in low carbon finance. On one hand, many foundations are divesting from investments in the oil and gas sector. The Rockefeller Brothers Fund, which made its money in the fossil fuel sector, is one notable example of dozens of institutional investors and wealthy individuals, totaling over US$50 billion in assets, which are part of a broader divestment initiative. On the other hand, more foundations today are investing more of their endowment corpus in projects and companies aligned with their mission, instead of just making donations with the interest generated from their endowment. Often these investments relate to clean energy. This mechanism is referred to as Program Related Investments (PRI). As one example, the Ford Foundation has committed over US$550 million to PRI.
What are we seeing firsthand in the market?
In our clean energy finance consultancy, IronOak Innovations, we are working with many investors that ask us to source solar and other renewable energy investment opportunities for them. Some of these capital providers are family offices, where a mission focus is not unusual, but some others generally invest in the oil and gas sector and see a need to diversify into high-growth sectors such as solar project investments.
Similarly, in our market research firm, g-bit, the green business informatics tool, we are helping private equity real estate firms cut through the noise and see where and how renewable energy installations can add real value to their large properties. We are have also been selected as contributors to a new green bond underwriting standard and business case. This market has seen dramatic growth, from US$ 3 billion in green bonds issued in 2012 to a projected $100 billion this year. Investors are hungry to invest in low-carbon solutions for both financial and public relations reasons. With this in mind, we are currently building one of the largest databases of energy investors in the United States in order to help entrepreneurs and developers more easily finance their low carbon assets.
Over 97% of climate scientists agree on two things:
- Humans are the main cause of climate change.
- This phenomenon is likely to cause the severe negative environmental, human, and economic impacts.
The discussion starts with doom and gloom, but it does not end here. Though this topic seems to focus on environmental goals, or a partisan agenda, it represents a financial opportunity, and some of the biggest capital providers and asset managers in the world are taking notice. Are you doing the same?
Consider the two bullets below for thoughts on how you might translate trends into new investments.
- How do you make the business case for mainstream financiers to invest in low carbon projects and products? Consider this primer from US SIF Foundation to get you started with answers to that question.
- If there is an environmental or social benefit to your venture, have you considered foundations and mission-focused investors as finance partners? Given the growth of impact investing, perhaps it is time you did. The World Economic Forum estimates there are over 120 investors in this sector that manage $46 billion of impact investments.