More than $12trn will need to be invested in new renewable power generation over the next 25 years to achieve the climate goals laid out in the Paris agreement, according to a new report from research group Bloomberg New Energy Finance (BNEF) and sustainability non-profit Ceres.
According to the report, the ambitious investment target is around $5.2trn higher than current spending projections, equivalent to $208bn a year.
"The clean energy industry could make a very significant contribution to achieving the lofty ambitions expressed by the Paris Agreement,” said BNEF chairman Michael Liebreich.
“To do so, however, investment volume is going to need to more than double, and do so in the next three to five years. That sort of increase will not be delivered by business as usual; closing the gap is both a challenge and an opportunity for investors. That is what this report is about.”
The report highlights the critical role of supportive government policies including the Paris “ratchet” mechanism, which will help ensure that every country’s commitments to reduce carbon pollution become more ambitious over time.
It also envisaged an investment environment where clean energy financing is no longer ‘alternative’, and starts to resemble other, more established infrastructure sectors such as transportation or real estate, from a financial structure perspective. This transition would see the rollout of investment vehicles supporting clean energy, including bonds and asset-backed securities.
BNEF’s own recent research found that clean energy investment enjoyed its best year ever in 2015 reaching $328.9bn – up 4% from last year and 3% from the previous record set in 2011.
"These investments will inevitably find their way into the portfolios of pension funds, insurance companies and other infrastructure investors," said Ken Locklin of Impax Asset Management, who partnered on the research. "Clean energy is a critical part of 21st infrastructure, so this transformation is fundamental to our investment future."
The UK is aiming to play its part in this transition through the launch of the Green Finance Initiative – a plan convened by City executives banks, insurers, accountants, academics, regulators, and government, which aims to make London the world leader in green finance.
However, some finance executives have expressed concern that the Government seemingly anti-renewable policy changes risk de-railing Britain’s chance to be a green financial centre.