At a glance :
- $225 trillion of private capital is currently allocated throughout the world’s financial markets – and can be realigned to channel capital into the green economy.
- Governments need to make changes to the real economy – e.g. introduce carbon pricing, pollution taxes and define minimum wages — to unlock private investment
- Private sector could also look at banking regulations and credit ratings to ensure the solvency implications of natural resources are properly factored into asset prices.
JAKARTA, Indonesia (7 May, 2014)_ More than enough private capital is available for green growth initiatives, including forest projects, but a lack of political will has blocked investors from unleashing much-needed finances, Credit Suisse Managing Director and Vice Chairman Mark Burrows said at an international conference Tuesday.
Lack of financing has been cited as a major setback in the Reducing Emissions From Deforestation and Forest Degradation (REDD+) scheme, aimed at conserving forests and preventing vast amounts of carbon from entering the atmosphere.
But according to Burrows, there is not a lack of finance for forests and, more broadly, green growth. What’s lacking is the action from governments, standards and certainty needed to greenlight investment.
“There are signs that one of greatest social innovations, and that is the financial market, can be realigned to channel capital into the green economy,” Burrows said at the Forests Asia Summit, organized by the Center for International Forestry Research (CIFOR) and Indonesia’s Ministry of Forestry.
“The really good news is this capital already exists at a staggering scale. An estimated $225 trillion of private capital is currently allocated throughout the world’s financial markets,” he said, describing a private sector eager to jump into green investment.
He said that public policy must pave the way with a financial framework to allow capital to flow into the green economy.
“We need political investment to unlock private investment,” he said.
Currently, an array of green investment opportunities have high environmental and social returns, but still lack concrete financial returns. To kickstart a vibrant green economy, governments need to make changes to the real economy — introduce carbon pricing, pollution taxes and define minimum wages, for example.
“Such changes could leverage between three and eight private sector dollars for every public sector dollar spent,” Burrows said.
With more than 40 years banking experience, Burrows sees green bonds — fixed-income financial instruments linked in some way to climate change solutions — as central to mobilizing funds to green growth.
Although the financial systems must at times seem very far removed from the forests… and the agricultural systems we are here to talk about, they are in fact intrinsically linked
Many of the world’s biggest sovereign wealth funds, banks and trillion-dollar-investors are showing enthusiasm in green bonds, Burrows said, largely because bonds are a “simple and standardized” product that investors are familiar with and that can reduce the risk and complexity of green investing.
Bonds are crucial because they represent the largest single pool of capital in the world and can easily be channeled to feasible forest conservation initiatives, including those defined as REDD+ projects, Burrows said.
“We need a green growth blueprint. Once we have a blueprint, we can use green bonds as the mechanism for preferencing sustainable investment over alternative growth strategies in forest communities,” he said.
But the financial sector does not need to wait for government action in all areas to scale up the opportunity.
“We could look at banking regulations and credit ratings to ensure the solvency implications of natural resources are properly factored into asset prices,” Burrows said.
“Although the financial systems must at times seem very far removed from the forests… and the agricultural systems we are here to talk about, they are in fact intrinsically linked.”
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