Super funds ideal for transition
Carbon Extra No 117, 18 February 2011
Economic returns of up to $US30 trillion for investors in low-carbon technologies and infrastructure could be realised this century, international climate risk professionals say. Nick Silver, co-founder of the Climate Bonds Initiative and its chief actuary, told Carbon Extra an innovative approach to tax breaks and levies was needed for the widespread economic investment that would help fund the re-industrialisation needed globally to achieve effective carbon abatement. “We’re not just talking about inventing new widgets to achieve lower carbon emissions,” Silver said. “We’re talking about having to reinvent the wheel effectively. Most of the existing infrastructure needs to be changed, which means the cost to any individual government is huge.” To meet carbon targets, govts must be prepared to be creative in developing an investment friendly climate, and fund some necessary infrastructure. “Investment generating policies that have worked are much more specific than a carbon price, for example [renewable energy] feed-in tariffs and returns on capital (ROCs),” he said. Climate Bonds’ Dr Karl Mallon told Carbon Extra govts had less than two years to put in place the necessary infrastructure to halt “runaway climate change”. “Clean tech and low-carbon industries can potentially reap large returns for investors if govts help mitigate some of the risk associated with investments. Every govt in the world must create a secure, long-term investment environment to allow for the major increases in the scale of production and installation required to create a low-carbon economy.”
Mallon said wealth management funds like superannuation funds were ideally suited to investment in carbon abatement technologies because they were designed for returns over a long term. “We have modelled the total cost of the transformation to a low-carbon economy at a minimum of $US500bn-$US1 trillion investment annually for 20 years. Annual expenditure will peak at about $US300bn a year by 2027 and then start to decline,” he said. Once this “investment hurdle” was cleared investors could start seeing capital returns. The challenge for govts globally was moving away from policy directives to “creating a mechanism that can unlock investment potential for that part of the financial sector with long-term appetite”, he said. “From our research and discussions with industry, if suitable ‘climate bond’-based financial mechanisms can be developed by govts and the private sector, the required low-carbon re-industrialisation investments can be remitted through substantial long-term returns leveraged through economies of scale.” Australian superannuation fund assets were estimated to have reached almost $US1.3tr, Towers Watson’s Global Pension Assets Survey 2011 reported this week.