As global clean energy transition takes hold and the market matures, a new Ceres report finds that the “Clean Trillion” – the goal of an additional $1 trillion investment in clean energy per year through 2050 – is eminently feasible.
The report, In Sight of the Clean Trillion: Update on an Expanding Landscape of Investor Opportunities, notes that the quality of available opportunities aligned with core investment fundamentals make clean energy investments more attractive to investors. Savvy investors are taking stock of the dramatically improved landscape for clean energy – which is increasingly out-competing new fossil fuel and nuclear power sources around the world.
“Large, diversified global investors must protect their portfolios from exposure to systemic climate-related risks if they expect to retain a viable rate of return,” says Jack Ehnes, CEO of CalSTRS, which holds a $225.5 billion investment portfolio. “Implementing a risk-diversification strategy that places a high priority on investing in sectors that are part of the transition to global clean energy is one such protection.” Ehnes adds, “This latest report from Ceres illustrates that the expansive range of quality clean energy investment opportunities and retaining successful investment outcomes are not mutually exclusive.”
These opportunities include clean energy infrastructure, energy storage technology, energy efficient buildings and digital energy technology, as well as key financing structures, including fund and co-investment, direct project investment, green bonds, securitized project debt, and more.
“Clean energy technologies such as wind and solar have de-risked and become a central competitive threat to fossil fuels and nuclear power, even as incentives decline,” says report co-editor Mark Fulton, a senior fellow at Ceres and veteran economist, strategist and former head of research at Citi. “Along with corporations, institutional investors have the opportunity to play a key role in the global clean energy transition as the risk and return characteristics of lower-carbon investments are set to increasingly outperform those with carbon risks.” Fulton adds, “Clean energy is rapidly proving its competitive place in the market, and it makes common sense to diversify investments in the face of that reality.”
Ceres’ report enables investors to understand and take advantage of these expanding opportunities as the risks associated with clean energy infrastructure decline, in contrast to the increasing risks of conventional high-carbon energy sources.
“As clean energy increasingly gains global market dominance, this new Ceres report points to key developments in the corresponding investment landscape,” says Ken Locklin of Impax Asset Management. “It provides important insights into this rapidly expanding and quickly developing market, detailing opportunities in clean energy infrastructure across solar, wind, energy efficient buildings, and energy storage sectors.”
A significant portion of the “Clean Trillion” investment is expected to be deployed in the transportation sector, the report finds, with the transition to low-emissions vehicles, such as electric vehicles. This shift in transportation investment will not require reinventing the wheel; rather, existing road-tested financing models can support the ongoing transition to clean transportation.
The report also points to the tremendous promise of green banks in catalyzing investment in clean energy, highlighting the experience of the world’s largest green bank, the Clean Energy Finance Corporation, which has driven significant investment in clean energy including energy efficiency.
“The clean energy transition is well underway and irreversible, and the capital needed to support it is not extraordinary in the context of existing global capital flows,” says Sue Reid, co-editor of the report and vice president of Climate and Energy at Ceres. “Scaling clean energy investment to achieve the ‘Clean Trillion’ is eminently feasible.”
While clean energy projects increasingly out-compete new high-carbon projects on their own merits, the report notes that policy solutions, including setting specific carbon reduction targets and placing a price on carbon, remain critical to support a sustainable transition to a clean energy future.
As a follow-up to Ceres’ 2014 report, Investing in the Clean Trillion: Closing the Clean Energy Investment Gap, the report released today notes that investing in clean energy is a crucial component of any investment strategy consistent with long-term risk diversification.