x Abu Dhabi, UAEWednesday 24 January 2018

Eco-Money: UN asks globe to invest $1.3 trillion in green paradigm shift

A United Nations blueprint for its green initiative asks for a 2 per cent investment of the global gross domestic product.

The UN has written a blueprint for green investment over the next four decades, calling for a complete rethink of the way in which market forces affect the environment.

According to a UN Environment Programme (UNEP) report, investing 2 per cent of global gross domestic product, roughly US$1.3 trillion (Dh4.8tn), into key commercial sectors will kick-start a low-carbon, resource-efficient green world economy.

Investment on the scale now being called for by the UN would radically transform the mid- to long-term green investment landscape over the early decades of the new century, pumping hundreds of billions of dollars into green investments around the world.

The report, Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication, says too much money has already been invested in the wrong sectors.

"During the last two decades, much capital was poured into property, fossil fuels and structured financial assets with embedded derivatives, but relatively little in comparison was invested in renewable energy, energy efficiency, public transportation, sustainable agriculture, ecosystem and biodiversity protection, and land and water conservation," the report says.

The UN is now asking governments to pass sweeping new legislation aimed at channelling investment into organisations with environmentally sound strategies.

"Unfettered markets are not meant to solve social problems, so there is a need for better public policies, including pricing and regulatory measures to change the perverse market incentives that drive this capital misallocation," argues UNEP.

The UN believes that sustainability of global resources is neither a left-wing nor a right-wing issue. "A green economy does not favour one political perspective over another," UNEP says in the report. "It is relevant to all economies, be they state or more market led."

UNEP warns that, while most economic development and growth strategies encourage rapid accumulation of capital, it is at the expense of natural resources.

But the UN has also identified another and more recent trend for financial institutions, such as insurance companies and pension funds, to examine a company's environmental credentials when investing in it. Commercial and even retail banks are now also increasingly using an environmental benchmark when accessing loan eligibility.

According to UNEP, about $627 billion of private capital was invested in renewable energy between 2007 and mid-2010. During the 12th five-year plan period starting this year, the Chinese government is also expected to invest $468bn in green sectors such as waste recycling and renewable energy.

This contrasts with an investment of only $211bn over the past five years.

Public transport investments yield economic benefits that often work out to be double the cost of the original investment. In sub-Saharan Africa, for example, reducing the sulphur content of fuels used for transport could save up to $980 million per year in health and related economic costs.

UNEP also believes that the fisheries sector is essential for economic development and the livelihood of millions of people around the world. But it argues that existing subsidies of about $27bn a year have created excess capacity. It has calculated that a one-time investment of $100bn to $300bn would reduce excessive capacity and increase the catch from the current 80 million tonnes a year to 90 million tonnes in 2050, despite a drop in the next decade as stocks recover.

"The present value of benefits from greening the fishing sector is estimated to be about three to five times the value of the necessary investment," UNEP says. "The alternative 'business-as-usual' scenario is continued decline and contraction of the fishery sector, resulting from increased scarcity and collapse of stocks."

Agriculture is also seen as a key sector for green investment. Current farming practices use more than 70 per cent of global freshwater resources and contribute to more than 13 per cent of greenhouse gases. The UN also believes they are related to three to five million cases of pesticide poisoning and more than 40,000 deaths every year. UNEP calculates that green agriculture investments totalling $100bn to $300bn from 2010 to 2050 would increase global yields for major crops, representing an improvement of 10 per cent over current investment strategies.

The construction sector is responsible for more than a third of global resource consumption, including 12 per cent of all freshwater. The climate footprint of the building sector is projected to almost double to the equivalent of almost 15.6 billion tonnes of carbon dioxide by 2030 (about 30 per cent of total energy-related carbon dioxide) in a business-as-usual scenario. UNEP is calling for enforcement of sustainable building standards, supported by economic and fiscal incentives.

Although the UN has no way of knowing the extent to which national governments will comply with all of its recommendations, the UNEP report is now set to have a positive effect on green investment over the coming decades.