New BSR Report: Scaling Clean Energy through Financial Industry Collaboration

Authors

• Ran Tao

  Former Manager, BSR

• Emilie Prattico

  Former Manager, BSR

BSR’s new report, “Scaling Finance for Clean Energy: Collaborative Solutions for a New Economy,” outlines how the financial services industry can collaborate to scale clean energy finance.

In 2015, the Paris Agreement established a universal framework for climate regulation, through which national governments are setting ambitious targets to reduce greenhouse gas emissions (GHGs) and working toward a global goal of net-zero impact in the second half of this century. For the first time, there is a clear policy signal for investors across all asset classes to make low-carbon investments, whether through financing projects or investing in new technologies. Investors are already responding: To date, more than 180 investors controlling more than US$20 trillion in assets have pledged to align their investments with climate-compatible growth through the We Mean Business coalition.

Today, investors have the opportunity to seize the extraordinary market shift to renewable energy supply. The International Energy Agency (IEA) projects that global investment from national climate plans will reach US$3.9 trillion by 2030, including US$1.3 trillion in wind, US$1.1 trillion in solar, and US$0.9 trillion in hydro.

Our research revealed that by collaborating within and beyond their industry, the financial services industry—including asset owners, asset managers, and commercial and investment banks—can address at least three market barriers to mobilizing funding at scale:

• Collaborate to assess and manage risk: According to Bank of England Governor Mark Carney, climate risk in the oil and gas industry is likely to result in stranded assets for up to one third of the world’s reserves, and current industry standards do not sufficiently support bank clients in addressing climate-related risks.
• Increase climate expertise to guide investments: The Task Force on Climate-Related Financial Disclosures (TCFD), chaired by businessman, philanthropist, and former New York Mayor Michael Bloomberg finds that companies need to develop organizational skills and capabilities for understanding and integrating climate-related risks and opportunities into investment decision-making.
• Develop common metrics and methods to identify climate-related investments: Economists predict massive structural changes in the next 10 to 15 years, especially for industries such as power generation, the built environment, and transportation, and banks do not yet have adequate metrics and methods to translate long-term climate trends into short-term investment opportunities.

To help the financial services sector capitalize on the unprecedented opportunities presented by the low-carbon economy, BSR plans to convene financial services industry players and others later this year to explore ways to collaborate and scale clean energy finance. In particular, we plan to examine how to develop common frameworks on risk-mitigation requirements, how to enable stakeholder engagement at the industry level, and how financial institutions and companies can collaborate to fund compelling clean energy projects.

BSR is collaborating with banks, corporations, and others to scale clean energy finance solutions. To learn more, contact Emilie Prattico and Ran Tao.