The Green Investment Report
The Green Investment Report
Securing green growth
- Investment required for the water, agriculture, telecoms, power, transport, buildings, industrial and forestry sectors under current OECD growth projections is approximately US$ 5 trillion per year until 2020.
- However, this business-as-usual investment will not lead to a stable future unless it achieves environmental and sustainability goals. Beyond the known infrastructure investment barriers and constraints, the challenge will be to enable an unprecedented shift in long-term investment from conventionala to green alternatives to avoid ‘lock-in’. This can be achieved by re-evaluating investment priorities, shifting incentives, building capacity, investment-grade policiesb and improving governance.
- There are additional investment needs of at least US$ 0.7 trillion per year to meet the climate challenge. This is needed for clean-energy infrastructure, sustainable and low-carbon transport, energy efficiency in buildings and industry, and for forestry, to limit the global average temperature increase to 2°C above pre-industrial levels. In other sectors, incremental investment needs are unknown and more work is needed to understand these.
- Estimated separately, the additional investment requirements beyond current spending for adapting to climate change are estimated at US$ 0.1 trillion per year in a 2°C scenario.
Current green investment flows
- Green investment flows have been summarized from different sources for climate-specific investment, notably renewable energy, energy efficiency, transport vehicles, forestry and climate change adaptation. In other sectors, such as transport infrastructure (roads and airports), buildings, industry, water and agriculture, flow estimates are lacking but business-as-usual spending predictions can be used as a proxy.
- Total investment in climate-change mitigation and adaptation in 2011 were estimated at US$ 268 billion from the private sector and US$ 96 billion from the public sector (US$ 364 in total, of which US$ 14 billion was for adaptation).
- For a subset of this climate-specific investment, namely clean-energy asset finance, investment has been growing at a rate of 32% per year since 2004. Investment flows in 2011 were up 93% from 2007, the year before the global financial crisis. In 2012, Southern-originating flows for clean-energy asset financing are set to exceed those originating from the North.c Most of this Southern finance is being used domestically and is an important emerging source of capital.
- Looking through the lens of climate-specific investment, financial flows still fail to close the cost gap. There is significant regional and technological bias in investment patterns. Investment is disproportionately focussed in the North and emerging markets, for wind and solar technologies in particular. To support global green growth and meet emission-reduction goals in a 2°C scenario, investment needs to rapidly scale up in other non-OECD countries and in general for renewable technologies beyond wind and solar. Investment in energy efficiency and sustainable transport are also lagging.
- Financing for climate-specific investment was split about 1:3 between public- and private-sector investments in 2011. Part 2 of this report elaborates on the strong potential for increased private sector participation.
Box 2: Defining the scope and methodology
Scope of the report
In order to measure, monitor and scale up progress in green investment, it is first necessary to define its scope. Efforts to date have focused on measuring and tracking investments to reduce greenhouse gas emissions (mitigation) and to reduce the risks and impacts of climate change (adaptation). Global spending on infrastructure has generally been tracked separately. The diagram below presents a conceptual framework for greening investment with the scope of assessment for this edition of this report. There is no comprehensive assessment of investment in the various sectors. Data gaps have been identified for current investment flows and future investment requirements in non-energy related sectors. Future editions of this report will aim to offer strategies to close these gaps, with a longer-term aim of obtaining a clearer picture of green-growth spending.
The frame of the assessment, which can be expanded in later editions, includes a synthesis of investment requirements from different sources (detailed in Appendix 1) to support growth under current projections. A subset of this business-as-usual investment needs to be ‘greened’ to ensure that investments are sustainable for a transition to green growth. This subset, however, has not been quantified in this edition of the report.
In addition to investment for growth, additional investment is needed beyond business-as-usual spending in order for green technologies to limit climate-change temperature increases to 2°C above pre-industrial levels. This is assessed for transport vehicles, power, industry, buildings and forestry, but is unknown for other sectors, such as agriculture and water. The combination of ‘greened’ business-as-usual investment and investment needed for green technologies comprise the total investment needs in a green-growth model for securing a sustainable future under a 2°C scenario.
The assessment of sectors in this edition of the report is not exhaustive and is based on data availability. Future editions will aim to expand the number of sectors assessed and the scope of that assessment.
Defining green growth and green investment
Various definitions of green growth exist.18 For the purposes of this report the definition adopted by the Secretary-General of the United Nations (UNSG) High Level Panel on Global Sustainability is applied. The High Level Panel sets out a vision for growth that eradicates poverty and reduces inequality, while combating climate change and respecting a range of other planetary boundaries. In this context, an inclusive green-growth strategy is an important driver for innovation and creating sustainable wealth.19
Green investment is a broad term closely related to other investment approaches such as socially responsible investing (SRI) and sustainable, long-term investing. As most green investment is needed to retrofit existing and develop new infrastructure,d this report focuses on infrastructure spending but acknowledges the need for non-infrastructure spending, such as for capacity building, deployment, training and research and development, to enable green and inclusive growth.20
This report collects and analyses three categories of data:
- Investment requirements in a business-as-usual scenario, under current policies. These are estimates of investment requirements to 2030 to support economic growth projections in a range of sectors, based on models and predictions from the OECD, the World Bank, the Food and Agriculture Organization (FAO) and United Nations Environment Programme (UNEP), in a scenario where green growth and climate change is not a priority.
- Investment requirements in a 2°C scenario, where climate change is a priority. These are estimates from the International Energy Agency (IEA), UNEP and the World Bank of investment requirements to 2030 in a range of sectors based on a scenario where the effects of climate change are kept at bay.
- Current known and historical investment flows. These are limited to climate-specific investments: mitigation and adaptation, summarized by the Climate Policy Initiative.e
The investment landscape and cost gap: Business-as-usual investment data was collated from the sectors outlined above and is presented below. Any incremental costs were calculated by subtracting the investment requirements in a scenario that aims to stabilize the global climate at 2°C from those under a business-as-usual scenario. Climate-change adaptation investment requirements were not aggregated and are presented separately. Collated data was not altered in any way, apart from converting United States dollar amounts to their 2010 rate for ease of comparison. All data sources, assumptions and calculations are provided in Appendix 1. It should be noted that the investment gaps presented in this report should be taken as indicative, and as a lower-range estimate, because further work is required to include other sectors and incremental costs to strengthen the scope of the analysis. Furthermore, caution should be taken in interpreting the investment requirements presented in this report where different sources are used, as the underlying assumptions of the different data sets may not be identical.
Green investment flows: A subset of climate-specific public and private investment is studied in more depth. Of this investment, new-build asset finance for clean energy (comprising about half of the total investment) is presented in directional flows between countries and domestic sources of finance.