Conference report: Innovation needed to reverse clean tech drop and bring in institutions

Despite a 12% drop in clean tech investment last year and a still unresponsive U.S. government, institutional investors, state treasurers, and investment bankers who spoke at the United Nations-hosted Investor Summit on Climate Risk in New York on Wednesday (Jan 15) found reason for optimism despite the frustration. The summit, convened by Ceres, the Boston-based sustainability advocacy group in collaboration with the United Nations Foundation and the United Nations Office for Partnerships to explore how investors can mobilize the vast amounts of capital needed to fight climate change, brought together nearly 500 investors representing tens of trillions in assets. The clean tech dip for 2013 came out in figures released at the conference by Bloomberg New Energy Finance (BNEF), which found global investment in clean energy was $254bn last year, down from a revised $288.9bn in 2012 and $317.9bn in 2011.
“The U.S. continues to lack the political will to put a price on pollution,” said Scott Stringer, who assumed the role of New York City comptroller two weeks ago.
But, he continued – in an argument that was echoed by various panelists throughout the day – investors and other business leaders can’t assume they are powerless to address the looming threat of climate change in the absence of a carbon tax or cap-and-trade system. Indeed, much of the day was devoted to discussions of actionable ways to mobilize significant private investment in clean energy in the absence of government action at the federal level.
Stringer said that U.S. states had been “inspiring laboratories of innovations,” citing California’s carbon trading market, and adding that for its part, New York is “anxious to do more”. Other panelists said the financial industry could sidestep the federal government’s sluggishness via financial innovation, citing the growth of the dynamic green bond market.“Let’s not just wait for policy,” said Mark Fulton, a senior fellow for Ceres: “Let’s get the cost of capital down, and appropriately price the cost of fossil fuels. I think that is the way forward.” Michael Liebreich, CEO of Bloomberg New Energy Finance, said 2013 had been a promising year for financial innovation, but that the industry would have to get more creative. He suggested that, for example, clean energy project investments could be packaged more like those in investors’ real estate portfolios, rather than mimicking infrastructure investment, as they more often do: “So many institutional investors are comfortable with real estate, but hold less infrastructure,” he noted. Donald MacDonald, trustee director at the BT Pension Scheme, the U.K.’s largest corporate pension fund, echoed the complaint: “There are not sufficient vehicles. We need to think about how we share risk, how we set up new investment vehicles.” He said the fund had allocated 5% of its assets to infrastructure, with a bias to low-carbon projects, but it has only been able to invest a small fraction of that: “We’re competing against our colleagues to find appropriate clean energy investments. We’re not getting the right projects packaged up,” he said. Cecilia Reyes, chief investment officer at Zurich Insurance Group, wished for “some intelligent way of breaking down the investments to give the risk to people who can absorb it, like development agencies. With that, we might be able to bridge the climate financing gap,” she said. Rob McCord, Pennsylvania’s treasurer, said the state is working on forging public-private partnerships that address the gaps financial services don’t yet fill for clean tech. But the next place financial innovation needs to focus on, he said, was the creation of secondary markets: “Products are nice,” McCord said, “but without secondary markets, you can’t get scale.
Collectively, we need to invest in similar types of product, securitize them, and offer them to the market.” Several panelists expressed optimism that this type of financial innovation is underway. Lisa Carnoy, head of global capital markets and Bank of America Merrill Lynch, pointed to the first public REIT designed to invest in sustainable infrastructure, launched by Hannon Armstrong Sustainable Infrastructure Capital. Frank Pegan, CEO of Catholic Super in Australia, said a registry had been created to track low-carbon investments in the country, maintained by institutions who are willing to share their investment ideas with their peers.Jane Ambachtsheer, global head of responsible investment at Mercer Investments, added that in the U.S., a handful of investors are overcoming some of the obstacles inherent to the space via the Cleantech Syndicate, a network of 13 family investment offices designed to make direct investments into private cleantech companies. Taken as a whole, the various conference discussions were an exhortation to investors and the other financial industry leaders present to work within their own industry and design methods of moving the vast amounts of capital necessary to combat climate change: “This is the key moment for that type of work to take place,” Ceres’ Fulton said. “And we’re calling on you all to engage in that.”