Institutional investors back new solar

Institutional investors back new solar

The Green Infrastructure Investment Coalition, launched during the COP21 negotiations, now counts over $60 trillion in assets under management supporting a trillion dollar investment in solar.

Institutional investors interested in sustainability have always expressed their support for moving their investments toward a low-carbon economy, but assert that conditions have prevented them from doing so at the scale necessary to help mitigate climate change.

In 2008, an interpretive bulletin of the Department of Labor's Employee Retirement Investment Security Act (ERISA) strongly discouraged economically targeted investments (ETIs) by pension plan fiduciaries, stating instead that financial returns are the paramount fiduciary duty. 

Furthermore, action by governments to create regulatory regimes that support clean energy investments has yet to occur, a situation made all the more transparent when one considers that government subsidies for the fossil fuel industries persist. 

In October of last year, however, the US Labor Department repealed the 2008 ERISA directive, stating, “Environmental, social and governance issues may have a direct relationship to the economic value of the plan’s investment... Fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social or other such factors.” 

And at COP21, governments finally agreed on commitments to limit global warming to less than two degrees Celsius. While the aforementioned regulatory regimes have not been overhauled yet, there is anticipation among sustainable institutional investors that the time for increasing their investments in clean energy is near. 

Launched during the climate negotiations, the Green Infrastructure Investment Coalition (GIIC) counted among its members institutional investors with $43 trillion in assets, which “signed statements about the importance of acting quickly on climate change. They also said they stand ready to invest in climate solutions,” according to the coalition at the time. 

Earlier this month, the GIIC aligned with investors representing over $60 trillion in assets to declare their support for the announced objective of the International Solar Alliance (ISA), of $1 trillion in investment in photovoltaic power generation by 2030. 

The mission of ISA, the organization states, “is to create a collaborative platform for increased deployment of solar energy technologies to enhance energy security & sustainable development; improve access to energy and opportunities for better livelihoods in rural and remote areas and to increase the standard of living.” 

According to the GIIC, “The joint goal is to create investment structures that meet the risk and yield requirements of institutional investors, and the promotion of suitable financial instruments that will accelerate investment in solar to the capital levels the International Solar Alliance is seeking to achieve.” The immediate plan is for the “swift mobilization” of $120 billion in investments in solar. 

“Scaling up global investment in solar power is critical to achieving the Clean Trillion goal of expanding clean energy investment by an additional $1 trillion per year — the level needed to achieve the Paris Agreement’s goal of limiting warming to well below two degrees Celsius, Ceres president Mindy Lubber stated. “Through this important new initiative solar power deals can be structured to provide attractive investment opportunities that meet the needs of institutional investors.” 

And Fiona Reynolds, CEO of the Principles for Responsible Investment (PRI) said “In transitioning to a low carbon environment, a move towards green infrastructure investments is a sensible response for investors.” 

As Lubber's statement points out, the trillion dollars in solar investments are but a small fraction of the amount that is needed. However, if the goal is reached — and if the development of appropriate financial instruments occurs — it's a worthy, if belated, start to realizing a low-carbon economy.

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