POWER November 2020 - 22

PROJECT FINANCE
Follow the Money-Considering
Climate in Energy Investment
Arguments continue about the impacts of climate change, but there's little debate
when it comes to where banks and other investors are putting their money.
Darrell Proctor
S
hareholders and institutional investors
are pressuring companies to
embrace clean energy. Financial
houses and banks are ending their support
for fossil fuels, directing their money
toward renewable energy and technologies
designed to combat climate change.
Even oil and gas majors, such as BP, are
moving away from their long-time core
business to invest in renewables.
The European Investment Bank, the
world's largest multilateral financial institution,
last year said it would phase out its
multibillion-euro financing for fossil fuels
within the next two years, becoming what
it called the world's first " climate bank. "
" Climate is the top issue on the political
agenda of our time, " said the bank's
president, Werner Hoyer. " We will stop
financing fossil fuels and launch the most
ambitious climate investment strategy of
any public financial institution anywhere. "
Fifth Third Bancorp, a major U.S. financial
services company, in late September
announced a new target of achieving $8
billion in sustainable financing by 2025.
The company said its investments will
include lending commitments and financing
for renewable energy projects,
including solar, wind, geothermal, biomass,
and hydropower. Policymakers
may argue over climate change (Figure
1), and some dismiss it altogether, but
analysts who spoke with POWER acknowledge
its impact on investing is
very real.
" Climate change should be a major
consideration in all investments going
forward, " Ian Manchester, senior associate
in Structured Finance at Distributed
Solar Solutions, told POWER. " This includes
industries from real estate to
infrastructure, as well as the obvious
power and energy market. "
Prioritizing Investments
Changing investment strategies may
sound simple, but there's more to it than
just announcing a switch. Financial analysts
say the market for investment products
that are considered to be green or
22
1. The potential future effects of global climate change include more frequent wildfires; longer
periods of drought in some regions; and an increase in the number, duration, and intensity of
tropical storms. Source: Shutterstock/NASA Global Climate Change
sustainable remains small, relative to the
needs of investors. The absence of an
economy-wide carbon pricing regime in
the U.S. is a barrier (see sidebar), along
with what analysts say is a misperception
that investments in sustainable or
ESG-focused
projects-environmental,
social, and governance-involve trading
off financial returns when compared with
traditional investment strategies. Investors
looking at climate change impacts
also should consider what technologies
are being used to deal with issues
caused by more powerful hurricanes,
tropical storms, and wildfires, all tied to a
warming Earth.
Analysts agree that due to continued
regulatory uncertainty, government support
is necessary to lessen potential
investment risks in both traditional and
new energy resources. That's a particular
problem in the U.S., where a change
in the political climate likely determines
whether climate change is even considered
a problem. Constant wrangling over
tax credits and incentives also muddies
the waters.
" It is not only extremely complicated
to discover and apply for C&I [credits and
incentives], but we have found the invisible
complication to be compliance. Most
C&I take multiple years to monetize, "
Laurence Sotsky, CEO and director of
Incentify, an enterprise technology firm
dedicated to realizing the financial and
societal goals of C&I, told POWER.
www.powermag.com
" The nature of large-scale innovation,
whether it is renewable energy or discovering
new medicine ... requires major
financial gaps to be crossed at the planning
and pre-commercialization levels, "
said Sotsky.
" Twenty years ago, you simply could
not make the business case to invest $10
billion in developing electric cars vs. investing
$10 billion in making gas-powered
SUVs [sport utility vehicles]. But when
multiple levels of government step in to
bridge those gaps in planning, now you
can move the market, " he said. " In some
ways, I don't even think that the word
'important' does justice to exactly how
crucial C&I is to large innovation-it's not
important so much as it is necessary.
Without C&I, the business case for innovation
at a macro scale does not exist. "
Building a Portfolio
A climate change investment strategy
can include support of green energy, or
money backing companies that make
infrastructure-like those involved with
manufacturing batteries for electric vehicles.
Another plan is to climate-proof a
portfolio, a belief that a warming world
will create economic disruption, and preparing
for that eventuality.
" Some of the problems we face today
could have been avoided if we had previously
taken a triple bottom line [essentially
ESG] approach to investing in the
past, " said Manchester. " Given all that
POWER | November 2020

http://www.powermag.com

POWER November 2020

Table of Contents for the Digital Edition of POWER November 2020