x Abu Dhabi, UAEFriday 21 July 2017

Eco-money: Corporations look to green investments

Green sectors such as wind are attracting investment attention from corporations around the world on the back of political unrest.

Wind turbines operate at Whitelee wind farm on Eaglesham Moor, near Glasgow, Scotland, U.K., on Tuesday, Dec. 1, 2009. Iberdrola SA's Scottish Power unit has finished the 322-megawatt Whitelee wind park, Europe's largest onshore project and will supply power to more than 180,000 homes, cutting 500,000 metric tons of carbon-dioxide emissions a year, the Glasgow-based company said. Photographer: Jason Alden/Bloomberg *** Local Caption *** 601451.jpg
Wind turbines operate at Whitelee wind farm on Eaglesham Moor, near Glasgow, Scotland, U.K., on Tuesday, Dec. 1, 2009. Iberdrola SA's Scottish Power unit has finished the 322-megawatt Whitelee wind park, Europe's largest onshore project and will supply power to more than 180,000 homes, cutting 500,000 metric tons of carbon-dioxide emissions a year, the Glasgow-based company said. Photographer: Jason Alden/Bloomberg *** Local Caption *** 601451.jpg

As the world clumsily tries to clean up its environment, the green transition market is being valued at a staggering US$45 trillion (Dh165.2tn).

"Institutional investors have focused on climate risk and now have made the leap to opportunities in the global retooling for the inevitable green transition, estimated to be a $45 trillion new global market," says Hazel Henderson, the president of Ethical Markets Media and the author of Beyond Globalisation.

According to Ethical Markets Media's annual eco-finance report, the Green Transition Scoreboard, private investments in green sectors since 2007 total more than $3.3tn. This represents a dramatic rise from $2.4tn a year ago.

The report's research also highlights that, in the past year, there has been a marked increase of interest on the part of governments and United Nations agencies in promoting green transition. This is seen in the context of widespread political and financial unrest, which may have prompted governments to grow their investment in long-term sustainable industries.

"Private markets and financial sectors rode roller coasters and global geopolitical risks, many self-inflicted: from political wrangling in the USA to the failure of EU politicians to address the travails of the euro. All this fuelled rising civil anger over too-big-to-fail banks while imposing cuts and austerity on their citizens," the report says.

Risks of investments in coal reserves of companies comprise 25 per cent on London's FTSE Index, for example, at a time when such industries are being seen less as assets and more as future liabilities in a carbon-constrained world.

"Some 40 per cent of companies listed in London's FTSE had foolishly over invested in 'proven reserves' of fossil fuels that likely will probably never be exploitable," Dr Henderson says.

The report cites renewable energy in general and smart-grid technology in particular as key areas for future investment. Smart-grid technology, the use of information technology systems and digital devices to monitor and control energy consumption, is currently fuelling a mini technology boom of its own, as well as enabling emerging economies to develop their infrastructures more rapidly.

"Smart grids are leading the monitoring revolution, which is marrying information technologies ever closer to renewable energy and allowing for centralised home-grown economies," the report says.

Its authors believe that the swing towards a truly green transition is already underway, with hedge funds and private investors now redeploying at least 10 per cent of their portfolios. Shortly after the report was compiled, it was reported that APG, the Dutch Pension Fund, is making a $1 billion investment in a wind farm in Mexico.

However detailed the global figures researched for reports such as the Green Transition Scoreboard may appear, they are bound to be relatively inaccurate. Without virtually infinite research facilities, it is impossible to track every green investment being made across the world in any 12-month period. It is not only the billion-dollar-plus deals that can be hard to foresee; smaller investments can also be difficult to track. It could be that even the overall investment figures quoted in the report are, therefore, underestimated.

The report's authors acknowledge that developing countries, in which green technologies are being seen as of paramount importance, have yet to compile the kind of data found in the report. But it is these countries that are making the largest relative investments in using new energy-efficient technologies to try to leapfrog western economies by avoiding legacy technologies and stranded assets.

The Green Transition Scoreboard tracks the five major sectors: renewable energy, green construction and efficiency, clean tech, smart grid and corporate research and development. But it cannot hope to monitor each and every investment across such a wide area. Ethical Markets Media says it has also been forced to become increasingly wary of investments that may appear to be "greener" than they actually are.

In developing countries, such as some of those in the Middle East, investment is being driven at every level, from start-ups to major renewable-energy projects. But, whatever the scale of the total global investment in funding green transition, the underlying trend is clear.

Recent geopolitical upheavals, coupled with uncertainties that have come after the global financial crisis have combined to make investment funds rethink their portfolios. It now appears they are at last slowly starting to shift investment away from traditional unsustainable and environmentally unfriendly industries towards renewable energy and associated technologies.

There is also a growing political unrest that is being factored into the financial institutions' risk calculations. Protests, such as those that followed the Occupy Wall Street movement in New York, in many countries are closely associated with the green movement, at least in the minds of many of those involved. This is something investors can no longer ignore as corporations with a poor green reputation may find themselves the targets of a massive barrage of negative publicity.

Green investors should take heart that the big investment battalions are now finally coming over to their side.

pf@thenational.ae