Financing the sustainable energy transition

Abstract

The alarming threats globally in recent times reinforce the fact that it has never been more critical for countries and economies to collectively address the transition to a low carbon energy industry in the context of meeting global sustainability targets. Some recent progress, such as the Paris Agreement, Kyoto Protocol and United Nation’s Sustainable Development Goals, demonstrates a strong global commitment from most countries to achieve sustainability globally. The challenge, however, is the enormous investment required which is estimated between $5 trillion and $7 trillion per year and channelling these investments. Governments and public funds simply cannot meet these astronomical investment requirements making the role of the capital markets and private sector instrumental in bridging the gap. Some of the leading global asset managers are already championing sustainability in their investment decisions and business practices. Recent studies indicate that the new generation of investors with changing mindsets seek for positive environmental, social and governance impact which is set to drive sustainability in investment decisions. These trends, together with the superior returns potential from sustainable investments compared to traditional investments, emphasise a likely strong match between financing requirements and investors. As this chapter illustrates, there is also a role for governments in developing countries to develop their capital markets and gradually internalise the direct and indirect subsidies from which the fossil fuel industry derives an unfair advantage. Only when these various change factors come together will it be possible to scale the sustainable energy transition.