Investors are responding to climate and societal crises
In the face of continued grim climate news and disturbing societal trends, it is increasingly clear that governments cannot marshall the resources—or perhaps even the will—necessary to the tasks before us. Increasingly, though, forward-looking investors are stepping in to help lead the way forward. Two recent reports offer some encouraging signs that global finance does indeed include many actors who are committed to the changes that we need.
Domestically, a progress report on an impact investing initiative from the White House Office of Social Innovation and Civic Participation shows actual investments to be outpacing and outperforming the initial commitments and expectations. When this private-investment initiative was announced in June 2014, they had $1.5 billion in new commitments to impact investments from private funds, foundation programs and endowments, investment banks, small family foundations, and nonprofit organizations. By the time the dust settled on the first round of planning, that total had grown to $2.5 billion to be invested over the five years from 2014-2019. The recent report followed up and found that in just the first eighteen months, through December 2015, almost half of this total had already been invested, suggesting that in the long run the goal may well be exceeded. This is especially likely when we turn to the returns coming in on the early investments, which universally have exceeded expectations. It turns out—no surprise to the SRI community—that investing in projects with strong social and environmental impact is very good business! So far, about two-thirds has been invested for social impact and one-third for environmental impact, especially climate solutions. 81% has been invested here in the U.S.
Internationally, the news is also encouraging. A recent UN report outlines the challenges before us: to meet both the UN’s 2030 Sustainable Development goals and the targets in the Paris climate agreement, $90 trillion of investment is needed over the next 15 years. This amounts to about 8% of global GDP over this timeframe, a daunting but not unrealistic goal. But to get there, it will mean marshaling the same power of private financing. As former Secretary of the Treasury Hank Paulson points out in an op-ed entitled How to Raise Trillions for Green Investments:
“The good news is that there is a global abundance of private capital. To unlock these riches, governments must create conditions that encourage private investment in clean technologies and sustainable development. With smart, well-designed and coordinated policies, financing models and instruments like bonds and incentive programs, countries have the potential to solve some of the planet’s most pressing environmental challenges while still maintaining economic growth.”
Paulson is especially enthused about the explosive growth of green bonds, which nearly quadrupled from 2013 to 2015, up to $42 billion. Of this, 40% is being deployed in China, where the government there has set ambitious green energy and building targets. The Building Energy Efficiency and Green Development Fund is a public-private partnership that will bring leading-edge technologies from U.S. companies to China to increase the energy-efficiency of new buildings there. (One more reason to NOT start a trade war with China!)
All this investment is still just the first few drops in the $90 trillion bucket, but the rapid ramping up of these and other green investment commitments suggests that the financial powers that be are finally waking up to the scope of our challenge and are ready to put their massive wealth to work making the changes that are needed. Time will tell whether it will be enough, but we’re encouraged that it’s happening on a scale we haven’t seen before.