A Green Investment Revolution?

By Donald Kanak, Chair of the Global Agenda Council on Insurance and Asset Management, Chairman, Prudential Corporation Asia

Hundreds of billions of dollars are required to finance solutions to our world’s environmental and climate challenges. The meetings in Durban last week gave negotiators a forum to build a consensus around the urgent need to mobilize financial resources.

Where will the money come from, especially at a time when governments from Whitehall to Washington are cutting back? A bevy of reports and studies have said that a lot of that investment will come from the private sector. Perhaps that’s right, but only if they put in place the conditions to mobilize private investment, specifically long-term capital managed by responsible financial institutions.

The insurance and pension industry represents the largest pool of long term investment in the financial world, with over USD 54 trillion under management.  Our industry could become an important source of “green” investing, BUT the policy makers need to recognize that we invest those funds as fiduciaries, on behalf of our policy holders, pensioners, and shareholders.

Without transparent and stable policy and regulation, it is very challenging for institutions to assess risk and returns on large scale long term investments in climate solutions, like renewable energy, reducing emissions from deforestation and degradation (REDD+) and Carbon Capture and Storage (CCS)?
I would like to echo and relay the call for action of the Global Agenda Council on Insurance and Asset Management, which today issued its statement on creating the necessary environment for investing in climate solutions and called for a road map for delivering a Green Investment Revolution within this decade.

The Council first strongly urged policy makers to make specific progress in five key areas:

1. Establish a Green Climate Fund (GCF) and mechanisms to mobilize adequate private sector investment.
2. Establish a Predictable Macro Environment for Green Investing.
3. Create a favorable climate for early adoption of energy savingtechnologies.
4. Commit to rapidly expanding “Climate Bonds” as a new and liquid fixed income asset class.
5. Move quickly to establish a large scale long term funding mechanism for Reducing Deforestation and Degradation of Forests (REDD+)

We are also urging policy makers to establish high level and technically experienced working groups to lay out a clear road map for delivering a “Green Investment Revolution” within this decade. This discussion should begin at the World Economic Forum meeting in Davos in January and be maintained during other public and industry settings throughout 2012.

You will find in-depth discussion of many of these issues in the Low Carbon Economy Finance paper drafted by our Council’s Vice Chair Joachim Faber, Chief Executive Officer, Allianz Global Investors AG.