Responsible Investor

Copenhagen climate summit frames investment choices

Survey of 64 developing-country financial institutions (FIs)

The upcoming Copenhagen summit on climate change comes without a moment to lose. Eleven years after the Kyoto treaty first put limits on greenhouse gas emissions, more than half of industrialized nations aren’t meeting their targets—and important players such as the United States and the developing world still haven’t set definite controls. To head off catastrophic warming, a nearly 50% increase in projected global warming emissions must be turned into a drastic reduction by 2050. The stakes are enormous, especially in developing countries where 90% of future emissions growth is expected to take place. On the one hand, these countries need affordable and sustainable forms of energy to support their rapidly growing economies. On the other, they could be devastated by weather changes that strain their agricultural systems, deplete local water supplies, flood coastal cities and cause human migration on an unprecedented scale. Climate adaptation will entail costs of tens or even hundreds of billions of dollars annually in the developing world. The local financial sector is not prepared to bear this burden yet. Nor is it ready for the torrent of investment dollars headed its way to support greenhouse gas mitigation.
Whatever else comes out of Copenhagen, financial partnerships must be forged to support the huge flow of

investment capital intended for the developing world. Such a helping hand won’t be a hand-out. On the contrary, industrialized nations in need of carbon offsets will turn to developing countries that offer the least-cost options in a burgeoning trading market. To complete the transition to a low-carbon economy, up to $50 trillion in renewable energy and energy efficiency investments will be required over the next 40 years, mainly in emerging markets. This puts financial institutions in developing and transition economies in a pivotal position: either they find ways to gain from these climate-friendly investment opportunities or face growing adaptation costs that sap available returns. As part of this global bargain, they stand to benefit from accelerated use of cutting-edge technologies while industrialized countries ease their transition away from carbon-based fuels. While it is not yet clear whether Copenhagen will bring this vision into reality, the German development finance institution DEG commissioned a first-of-its-kind survey that provides some hopeful signs. Conducted by RiskMetrics Group, the survey reached out to 154 commercial and development banks, investment funds and leasing institutions in Eastern Europe, Africa, Asia and Latin America. Of the 64 developing-country financial institutions (FIs) that provided complete responses:

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