Several major financial institutions have made massive sustainable-investment pledges surrounding COP24, the new round of global climate talks that concluded earlier this month in Poland. The World Bank announced $200 billion in funding for projects tackling climate change in developing countries. Five of Europe’s largest banks, managing more than $2.7 trillion, promised to reassess their lending and reduce their carbon impact. And several countries increased their funding to the Green Climate Fund, which supports renewable energy and climate resilience projects in developing countries, bringing the funding to $7 billion.
The announcements are part of a trend towards sustainable investing. However even with these pledges, the future of clean energy investment for tackling climate change is still unclear.
The consequences are stark. Recently, researchers from the Global Carbon Project announced that global emissions of carbon dioxide have reached the highest levels ever recorded. The COP24 conference followed several recent reports, including from the International Panel on Climate Change, the International Energy Agency and the Trump administration, which laid out the level of destruction climate change can wreak on the environment, economy, and human life.
Limiting global warming to 2 degrees Celsius will require transforming the energy sector and will come with a hefty price tag. The International Renewable Energy Agency found that an additional $25 trillion of renewable energy investment would be necessary by 2050, or over $700 billion per year to limit a rise in temperature to 2 degrees C, more than double the current sector investment.
Analysis from climate scientists and experts suggests that major strides in emissions reductions will not be possible without greater investment, especially towards renewable energy. On top of pledges made this week, financial innovations that drive capital towards both large-scale deployment of renewable energy and development of cutting-edge new technologies will be necessary.
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Large-scale deployment of mature renewable energy technologies like wind farms and solar parks is critical to meeting climate goals. Projects that can provide mass electricity to cities and urban areas are now increasingly attractive to institutional investors like pension funds, which pursue major renewable energy development as cost-competitive infrastructure investments; in the second quarter of 2018, renewable energy assets accounted for more than half of the number of infrastructure deals.
This increase has been spurred by a rise in impact investing, which considers societal and environmental factors when making investment decisions. Recent adoptions of impact investing have seemed promising; in 2014, the California State Teachers’ Retirement System pledged to double its clean energy investments to $3.7 billion over the next five years. The Ceres Investor Network on Climate Risk of over 161 institutional investors with a $25 trillion in assets has encouraged clean energy investment and carbon reduction.