Alexander Meyer zum Felde
International climate talks in Paris set an ambitious goal: to sharply reduce global warming by 2100. This will require increasing current investments in clean energy and other sustainability efforts by $1 trillion per year until 2050. The more recent discussions at COP23 in Bonn further addressed the challenges of reaching this goal—and the lack of meaningful progress. What will it take to persuade companies to develop more of these projects, and capital markets to invest in them? To find out, the World Business Council for Sustainable Development (WBCSD) joined forces with The Boston Consulting Group (BCG) to explore what types of green projects are succeeding, what financing options are available, and what the investment community thinks about sustainable investing
Our resulting report revealed, first and foremost, that green investments must be financially attractive. And in fact, they do deliver above-average returns, as shown in the 13 case studies outlined in the report. Various sources of funding are available for green projects, depending on their stage of maturity. The report explores eight different options ranging from grants and government loans to venture capital and green bonds. The overview of each option includes typical market, instrument, and project attributes. (See the exhibit.) For instance, we found that the green finance market for venture capital is $5 billion to $10 billion, largely funded by institutional investors and primarily focused on early-stage projects in technology industries.
We looked at green investments across four critical sectors—alternative fuels, clean transport, reusable resources, and renewable energy—to gain a better understanding of the range of vehicles used and how they map against different stages of project maturity. Some financing options, such as internal funding, government grants, bank loans, and private equity, are fairly well known. Companies may be less familiar with other options, such as:
In addition to developing company case studies across the four green sectors, we took an in-depth look at how specific members of the investment community in different regions and industries are shifting their portfolios to focus more on greener investments—and how they’ve found ways to make those investments economically attractive. All indicated that they would be willing to expand their green investments if the risk-return profiles continue to be good.
The report includes detailed recommendations for companies and investors that are hoping to go green. To increase the odds of success, companies should weigh the risks and potential returns of any sustainability project and create a strong business case before proceeding. In other words, they should evaluate green projects as they would any other strategic business initiative. For their part, investors should stay on top of new technologies, industries, and locations with strong potential. Projects and technologies with the biggest environmental and financial impact will attract the most attention and demand—and deliver the biggest returns. To stay aligned going forward, companies and investors alike should: