The UK Government’s Department for Energy and Climate Change (DECC) has unveiled a set of principles developed by Anglia Ruskin University to help mobilise private investment into climate change solutions. https://www.decc.gov.uk/en/content/cms/tackling/international/cmci/research/research.aspx
Private sector investors such as banks, pension funds and insurance companies have to manage a number of risks when making investments, including risks associated with currency instability in countries, technology risks and risks associated with changes to policy.
Dr Aled Jones, Director of the Global Sustainability Institute at Anglia Ruskin, has chaired a working group of the Capital Markets Climate Initiative (CMCI) set up by Greg Barker MP, Minister for Energy and Climate Change at the DECC.
CMCI is designed to support the scale up of private finance flows for low carbon technologies, solutions and infrastructure. It aims to forge an understanding amongst policy makers of why and how public sector action can help mobilise private capital by managing some of the risks that make investing in climate solutions difficult.
Working Group 1, chaired by Dr Jones, has developed a set of principles for policy makers to enable a common understanding of what constitutes ‘investment grade policy’ in both developed and developing countries. Working Group 2 is chaired by the World Economic Forum and is exploring best practice through country partnerships.
Dr Jones said: “Governments from all nations have committed to tackling climate change under a set of agreements as part of the United Nations Framework Convention on Climate Change (UNFCCC). In particular developed country governments have committed to mobilising $100 billion in annual investment flows into emerging and developing economies to enable them to deliver on mitigation and adaptation targets.
“Through chairing Working Group 1 of CMCI, Anglia Ruskin has led on a consultation with private and public sector institutions to understand what makes an investable landscape for private capital whether they are in developing or developed countries. A set of principles for ‘investment grade policy’ has been developed which is now being used in a wider consultation with various parties to help further discussions around mobilising this private capital.
“The aim of CMCI is to make a practical difference in this space – that is to actually lead to private capital being invested in climate solutions around the world through well managed and diverse mechanisms.”
One example of this is the Feed-in-Tariff regime to aid the deployment of solar technology which was introduced by the UK Government in April 2011. The following year saw a 10-fold increase in solar installations per month, prior to a change in the Feed-in-Tariff. China has introduced several policies, including a Feed-in-Tariff, to support the deployment of wind power which has seen a dramatic increase in wind installations over the last five years.
The UK Government has also launched the Climate Public-Private Partnership Fund (CP3) which is an investment vehicle allowing private sector companies to invest alongside the UK Government in climate solutions in developing and emerging markets.
The principles will be tested and further developed through Working Group 2 of CMCI. In addition, the case studies of policy implementation will be analysed using the principles to test their effectiveness as they are developed by other groups and organisations.
The best long-term use of the principles will also be explored with relevant stakeholders and the principles could be used by the private sector to analyse the policy environment of a particular country to help judge whether it is ‘investment grade’.