Renewable Finance and Investment Management

Guo yi min wei ben

The foundation of a country is made up by its people.

People are a country’s roots.

Executive summary

Globally, there are essential needs to control climate changes and manage climate risks. Climate finance and green renewable investments have been growing in recent years. Economists have estimated that renewable investments have exceeded USD1 trillion. Looking ahead, renewable investments have been forecast to grow at about USD200 billion per annum. These should help to improve sustainability and environments globally. Climate change risks could seriously undermine the financial performances and the bottom lines of leading banks and companies globally. New climate risk financial disclosure and governance requirements are being introduced by various key governments and stock markets globally. These would compel all the leading banks and companies internationally to improve their corporate governance and financial reporting. Details of these will be discussed in more detail in this chapter together with international examples.

Renewable finance and investment management

Globally, the green finance and renewable investment sectors have been fast-growing sectors in recent years but probably it is still not fast enough. Global investments in renewable power and clean fuels have been growing strongly in the last decade. These have exceeded USD200 billion per year for the past seven years. A good example is that in 2016 the total new investment in renewable power was over USD260 billion. The green bond market globally has grown to USD155.5 billion. However, this was still only about 2% of all USD6.7 trillion of bonds issued globally in 2017. So there will be much room for further green investment and green bond developments.

Despite these rising investments, the global renewable energy investments are still much lower than, at about one-third, the global fossil energy investments. A good example is that in 2016 over USD530 billion has been invested in various fossil fuel and energy projects globally. This was made up by some USD87 billion lent by the world’s 37 top banks for fossil fuel extraction plus some USD437 billion of fossil fuel investments by various oil and gas companies globally. These fossil investments were about two to three times of the clean renewable energy investments.

The current large financing and investment gaps between clean energies and fossil investments have posed major challenges internationally. Looking ahead, these big investment gaps could also help to create significant new investment opportunities. These could lead to bigger future new sustainable green investments as well as growths in many new jobs in green finance and clean technologies globally. However, there are still quite some challenges and hurdles to overcome to fully realise these green finance and renewable investment growth potentials.

Looking ahead, leading climate agencies globally have forecasted that over USD90 trillion of new green investments will be required from now to 2030 to achieve the aspired global new improved sustainable development and climate objectives. These new renewable investments and green finances will have to come from both public and private sources. Economists have generally forecasted that governments will only provide a small amount of public seed investments to kick-start these renewable investment growths. The bulk of the new green finance and renewable investments will have to come from private and corporate sources globally.

A good example is that in the UK the Committee on Climate Change (CCC) has estimated that the total investment required to meet the UK’s fifth carbon budget will be some £22 billion per year, which would represent about 1% of the future UK GDP. These would likely involve a public investment of £2.2 billion which is about 0.1% of GDP annually. The remaining investments will have to be funded by the private and corporate sectors in the UK (New Climate Economy Report, 2014).

Many developing economics, particularly China and India, have been growing fast. These developing economies have also huge future potential demands for green finance and new climate investments. These should generate further new international requirements for green finance expertise plus new international trade opportunities.

A good example is that in China the PRC government has announced its new “ecological civilisation” national green transformation programme in its 13th Five-Year National Plan. This would require new renewable investments and green finance of between USD470 billion and USD630 billion, in the period from now to 2030. It is expected that the PRC government will only provide some 15% of green seed public funding. The private and corporate sectors in China will have to generate at least 85% of the required future renewable investments and green financing.

 
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