Green infrastructure grows like a weed
The following is an excerpt from the GreenBiz State of Green Business Report 2016.
The long-term effect of the landmark Paris Agreement guiding global emissions reductions won’t be clear for years. But there’s one place where its impact is being seen almost immediately: private-sector investments in low-carbon alternatives for energy, water, transportation and other critical infrastructure projects. We’re talking billions, if not trillions, of dollars of committed money.
The first hint came before the COP21 climate summit even began, when billionaire philanthropist Bill Gates announced the creation of the Breakthrough Energy Coalition, a multibillion-dollar fund for clean-energy alternatives that includes a Who’s Who of entrepreneurs, from Virgin Group’s Richard Branson to Facebook’s Mark Zuckerberg.
Their mission is to scale and innovate in reliable, low-cost, carbon-free energy. (They don’t actually use the “green” label.) Their imperative? The world moves far too slowly on this agenda due to both political and economic forces. After all, if you consider the history of fossil fuels, it took more than four decades for oil to supplant coal.
“Energy is already a trillion-dollar market, and clean energy could one day be a multitrillion-dollar market,” writes Gates, in an essay rationalizing the coalition’s creation. “But private investors are reluctant to get into the field, for the same reason that energy companies tend to underinvest in R&D: Breakthroughs can take decades to play out and their inventors see relatively little reward.”
The Breakthrough Energy Coalition, Gates argues, will help get innovation out of the lab and into the marketplace faster. Its public-sector counterpart is Mission Innovation, a group of 20 countries — which currently provide roughly 80 percent of all clean-energy R&D — that have pledged to double funding levels for these technologies over the next five years.
It’s not just energy. Another group likely to shape the agenda is the Green Infrastructure Investment Coalition. The group represents the Climate Bonds Initiative, which promotes large-scale investment in a low-carbon economy; the Principles for Responsible Investment, an investor group representing more than $1 trillion in assets; the U.N. Environment Programme (UNEP) Inquiry group, responsible for suggesting and advocating policy options; and the International Cooperative Mutual Insurance Federation. Together, they represent at least $69 trillion in assets.
“One of the key gaps identified by the UNEP Inquiry was the absence of a common platform at the international level to mobilize global debt and equity capital markets for the transition to a green economy,” explains the organization’s co- director, Nick Robins. “This new coalition will help to fill this gap and deliver practical guidance on how to build on the power momentum we have seen in 2015.”
It’s important to note that the term “infrastructure” covers many different concepts, depending on the company in which you use it. Energy infrastructure is just one small piece.
From a CEO’s standpoint, infrastructure probably conjures up images of office facilities and capital equipment. A public official, on the other hand, likely associates infrastructure with roads, bridges and water management systems. The common thread is this: Green infrastructure investments consider the impact on natural ecosystems far more carefully. The goal isn’t just to minimize potential negative impacts, it’s to maximize resilience by playing to the strengths of the natural world.
One oft-cited corporate example is a wetlands project in Seadrift, Texas, spearheaded by Dow Chemical subsidiary Union Carbide. When faced 20 years ago with the choice of building a traditional wastewater treatment facility or opting for one that borrowed filtration ideas from nature, the team in charge opted for the green infrastructure approach, where natural ecological systems, not chemicals, treat the water. That system wasn’t just cheaper to build; it so far has delivered more than $200 million in other benefits to the community, including freshwater habit for dozens of species.
From the municipal point of view, the green infrastructure concept has gained more credibility thanks to projects in New Orleans, which rethought its coastal management system with an eye toward resilience after the devastation of Hurricane Katrina; and New York City, which started prioritizing bioswales, green roofs and other natural systems for handling stormwater runoff even before Superstorm Sandy exposed the city’s vulnerabilities.
Canada’s Prime Minister Justin Trudeau made headlines last fall when he emerged as a huge supporter of green infrastructure, describing it both as a defense against climate change and a way to grow the national economy. His administration has budgeted more than $4 billion over the next four years to apply the concept to wastewater treatment and floodwater mitigation systems, and about the same amount to public transportation projects. It established the Canadian Infrastructure Bank to provide low-cost financing.
Still, green infrastructure has its share of criticsism. The biggest is that there’s no real way, yet, to measure the real impact of a project on the creation of a low-carbon economy.
But the reality is that green infrastructure is taking root. There were more than $39 billion worth of green bonds issued in 2014, more than double the dollar amount of the previous year. Much of this money will be used to finance clean-energy projects. The annual value could reach $1 trillion by 2020, according to a report by the Climate Bonds Initiative, UNEP and the World Bank. Some of the fastest growing markets: Brazil, China, India and Mexico.
“Readying the world economy for the climate change challenge can be seen as a major investment opportunity, one that goes far beyond the energy sector, in all asset classes, sectors, industries and countries,” the report notes. “This includes low-carbon transport, such as railways and urban metros, and low-emission buildings, both new constructions and retrofitted existing buildings.”
Pick your focus. The fact remains: Real investors, representing real money, finally are ready to finance infrastructure projects that harness nature’s services at their best.