Investors Ready to Fight Climate Change, But Government Policies Aren't Helping

Trillions Will Be Needed to Create a Low-Carbon Economy

Dec 13, 2009

The hallways at the international climate summit at Copenhagen are crawling with big private investors who are ready to open their wallets to solve the climate crisis.

And there are plenty of folks trying to get their attention — among those, 13-year-old Litha Maqungo of Capetown, South Africa.

"Climate change will bring too much pain and suffering with droughts famines and floods," Litha, speaking in a slow powerful voice, told a group of 100 investors at a dinner last week.

"In Africa, fertile land is already turning to desert. By 2020, climate change is predicted to reduce some Africa farming harvests by 50 percent, which is 50 percent too much."

Powerful stuff, for sure, but Litha did not leave the room any richer. In fact, judging from the discussions in hallways, Africa seems the last place private investors want to risk putting their money.

This harsh reality touches on the vast challenges COP negotiators face in channeling the power of private investment to the colossal climate challenge.

We know that trillions of dollars of investment is needed to help create a low-carbon global economy in the coming 20 years. We also know that 80 to 90 percent of those investments will need to come from institutional investors, pension funds, hedge funds and other private investors with the deepest pockets.

So why is so much of this money sitting on the sidelines, especially when it comes to Africa, which is so much on the receiving end of a changing climate's worst impacts?

A few of the key stumbling blocks surfaced at a panel discussion, "Leveraging Private Climate Mechanisms through Public Mechanisms."

    Weak Carbon Policies

    Strong national and international policies that limit and put a price on carbon emissions are desperately needed. Without such policies, investors will keep investing in higher-carbon markets such as oil, gas and coal.

    "The market doesn't make judgments on what markets ought to look like. That's up to the policymakers," said James Cameron, vice chairman of UK-based Climate Change Capital.

    Cameron noted that while his group has $1.6 billion invested in low-carbon ventures, "high carbon investments are still very attractive."

    Public Financing

    New and better-funded public financing mechanisms are urgently needed to spur wider, more open types of climate investments globally. These new mechanisms, such as climate bonds and global carbon funds, will allow significantly broader investments — including forest protection — than the current clean development mechanisms (CMD) in the Kyoto Protocol allows.

    "You can't expects CDMs to be all things to all people," Cameron said.

    Public vs. Private Financing

    Negotiators for developing countries do not trust "the private markets" to solve climate change and strongly prefer an international treaty with lots of public financing.

    "Public has to come first," said Rae-Kwon Chung, a key negotiator for Korea.

    But the developed countries seem unwilling to open up their treasuries. Their latest proposal is about $10 billion of public financing a year for the next several years — a far cry from what the developing countries and investors say are needed.

Given the common threat, whether in Litha's South Africa or Cameron's United Kingdom, Cameron says it is time to stop sniping about who is paying what.

"We're in a new realm. We're desperately trying to re-invent markets to deal with the public good," he said. "Let's stop thinking, 'is the money coming from Treasury or a pension fund.' We've got to stop thinking about these divisions."

 

See also:

S&P, World Bank Launch Emerging Markets Index Based on Carbon Efficiency

Adapting and Mitigating Climate Change: A Deeply Nuanced Approach

Poor Nations to Drop Deforestation Targets if No Funding from Rich

 

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