A new, broad measure of ‘energy transition investment’, compiled by BloombergNEF (BNEF), shows that the world committed a record $501.3 billion to decarbonization in 2020, beating the previous year by 9% despite the economic disruption caused by the Covid-19 pandemic.
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Following a tough first half when corporate funding was down 25% year-over-year, recovery has been swift and broad, with corporate funding up 24% for the year. The solar ETF was up 225%, with 15 solar stocks up over 100% in 2020. Public market funding was also up with the help of several IPOs, and debt financing was up on the back of securitization deals.
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Debt-for-climate swaps have become a movement within development finance over the past few months. Several exhort action in these current fiscally constrained times to help with debt relief and to promote a green recovery. There are also proposals for addressing the climate and health nexus. Others advise caution before jumping into doing one of these transactions, arguing that such a swap may not be the most efficient way of achieving mutually desired goals.
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Green bonds have played an important role in developing the market for sustainable finance instruments. Its rapid growth is a testament to investors’ demand for such instruments, which is likely to grow further. Complementary ratings to current green certifications could help to convert market trends into much needed reductions in carbon emissions.
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The Philippines has been one of the fastest growing economies in the Association of Southeast Asian Nations (ASEAN) and despite the covid-19 crisis, the economic growth is expected to rebound gradually in 2021–2022. However, this recovery from the COVID-19 crisis would need urgent focus on green infrastructure and creating an enabling environment for these investments. The Green Infrastructure Investment Opportunities: Philippines 2020 Report has been prepared by the Climate Bonds Initiative (CBI).
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KEPCO and other companies that have decided to pursue a greener business model should be working hard to demonstrate to the market that they are taking the right steps to align with ESG investors. At this stage, however, it is unclear whether KEPCO has the appetite to seriously transition into a world-class renewable power company and catch up to its ambitions.
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JPMorgan Chase announced in October that it would shape its financing portfolio in three key sectors to align with the Paris Agreement; three days later, HSBC announced its statement of net-zero ambition. This past year has seen a slew of similar statements, including from Barclays in May—making it one of the first banks to announce ambition to go net zero by 2050—and then from Morgan Stanley in September.
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Investors representing more than $45 trillion in assets under management have already agreed to drive climate change action across their portfolios. Sustainable finance has, therefore, become an integral part of how many financial services firms operate.
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The experiences of Jordan and Rwanda show that there are different ways to address this challenge. In retaining the fund model, Jordan seeks to innovate within its constraints, while Rwanda is creating a new institution to expand the financial instruments available to it.
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Countries such as Indonesia, Malaysia and the Philippines all fit into this category, with Vietnam potentially offering the greatest immediate opportunities. The OECD forecasts Vietnam’s economy will grow 6.5 per cent over the next five years.
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IEEFA has tracked 50 significant global financial institutions to date that have announced oil and gas investment restrictions, specifically on oil sands exploration and/or Arctic drilling. While 39 have declared a formal policy against oil sands and 37 on Arctic drilling, 26 financial institutions have restricted both. Most are an extension of existing policies restricting thermal coal power and coal mining lending.
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Southeast Asia requires an estimated $3.1 trillion or $210 billion annually from 2016 to 2030 for climate change-adjusted infrastructure investments. However, with a financing gap estimated at $102 billion per year for selected Southeast Asian countries from 2016 to 2020, the need for private sector financing to fill the gap was already critical even before the pandemic.
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With energy having been identified as an enabler of the socio-economic pillar of Kenya’s Vision 2030, the country has set an ambitious target of achieving 100% renewable energy by 2030 and seeks to deliver universal access to electricity for households and businesses by 2022. To achieve these targets, investment of $2.75 billion is required, with an additional $58 million every year after 2022.
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With economies across the world trying to recover from the impact of the Covid-19 crisis, there is ample opportunity to make this a “green recovery” with upfront investments in sustainable infrastructure and renewable energy sources. Thus, there is expectation of significant private participation being channeled in these green investments in the medium to long term.
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In developing countries, governments may not have the financial means for generous stimulus packages, or may even turn to supporting fossil fuel infrastructure. For 2020, the IEA expects the largest drop in global energy investment in history, a fall of 20% compared with last year.
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Renewable energy capacity, excluding large hydro, grew by a record 184 GW in 2019. This was 20 GW, or 12 per cent, more than new capacity added in 2018. Yet the 2019 dollar investment was only 1 per cent higher, at $282.2 billion. Nations and corporations have made clean energy commitments over the next decade. Analyzing them, UNEP’s report finds commitments for 826 GW of new non-hydro renewable power capacity by 2030, at a likely cost of around $1 trillion.
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Although the impact of green banking has been relatively small to date, there is significant potential to scale, which would have major impacts on the availability of financing for sustainable infrastructure around the world.
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Chinese regulators recently proposed eliminating so-called “clean coal” from the list of projects that can raise funds using green bonds. While this may not sound like a big deal, if it goes through, it could be the start of a much-needed transformation in China’s green finance market – and a move away from coal power.
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The total solar corporate funding (including venture capital funding, public market, and debt financing) in first half of 2020 came to $4.5 billion compared to $6 billion in the first half of 2019.
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Listed renewable power portfolios have outperformed listed fossil fuel portfolios in all geographies. Moreover, during periods of high market and oil price volatility, fossil fuel portfolios experienced larger drawdowns than renewable portfolios.
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