Tuesday, April 17, 2018

Is this Tory Government the greenest ever?

British Conservative politicians are spearheading efforts to phase out coal and go net-zero – and that’s just the start of their Green policy-making. What's going on?

This is an updated version of an article published on The Fifth Estate on 10 April. 

Claire Perry, Energy and Clean Growth Minister
Claire Perry, Energy and Clean Growth Minister

Britain’s Energy and Clean Growth Minister, Claire Perry, has called for Parliament to draft new laws that will cut emissions to net-zero.

This follows her trip to New York last week when she attended the Bloomberg Future Energy Summit in New York last week where she set out the case for making coal history. “By phasing out traditional coal power, we are not only taking active steps to tackle climate change, we are also protecting the air we breathe by reducing harmful pollution. The Powering Past Coal Alliance sends a clear signal that the time for unabated coal fired electricity has well and truly passed,” Perry told her New York audience.

The Powering Past Coal Alliance was launched by Perry and her Canadian counterpart Catherine McKenna, the Minister for Climate Change, three days after the COP23 climate change conference last November. Its members number 27 countries plus a host of regions and businesses. Ireland, one of the most recent to join, has pledged to close its one remaining coal plant by 2025 at the latest.

Catherine McKenna, Canadian Minister for Climate Change
Catherine McKenna, Canadian Minister for Climate Change

“The UK leads the world in tackling climate change – we have reduced emissions by more than 40 per cent since 1990,” Perry said.

She is not wrong. UK carbon emissions dropped 2.6 per cent in 2017 compared to the previous year, a 43 per cent reduction since 1990. Renewables powered more than coal and nuclear combined during the final quarter. Emissions are now at a level not seen since the end of the 19th century when the industrial revolution was in full swing.

Wales is fast switching away from coal to renewables (it once was the world’s biggest coal exporter) and in Scotland wind power supplied 173 per cent of Scotland’s entire electricity demand on March 1. Even on the worst day for wind during the first quarter of 2018, January 11, wind powered the equivalent of over 575,000 homes there.

Perry said she hopes Australia and more countries, businesses, and regions will soon join New Zealand, France and Italy and sign up to the Powering Past Coal Alliance.

“Australia has different choices to make, and it would be wrong of us to sit here in Britain and prescribe what Australia’s energy policy should be, what we’re trying to do is to help and to show that there is a way through this,” she said.

A statement on the Canadian government’s website states the reason for the Alliance:
"Coal is one of the most greenhouse-gas intensive means of generating electricity, and coal-fired power plants still account for almost 40 per cent of the world’s electricity today. This reality makes carbon pollution from coal electricity a leading contributor to climate change.

"As a result, phasing out traditional coal power is one of the most important steps that can be taken to tackle climate change and meet our Paris Agreement commitment to keeping global temperature from increasing by 2 °C and pursuing efforts to limit the increase to 1.5 °C. An analysis shows that, to meet this commitment, a coal phase-out is needed by no later than by 2030, in the Organisation for Economic Co-operation and Development and in the European Union, and by no later than by 2050, in the rest of the world."

Drax power station
Drax power station

Drax Power Station in Yorkshire, Britain’s largest electricity generator, stands as a symbol of this change. It was once dubbed ‘the dirty old man of Europe’ for being the most polluting British power station and a focus of climate change campaigners' actions. The activists have won. No longer does it burn coal; three of its six generators burn wood, albeit controversially imported from the USA.

But although she is against coal and has today said the UK government will ask its climate watchdog to consider how the UK could meet 1.5C Paris target and become net zero, Perry has also said she supports the UK oil and gas industry. In January she told the Maximising Economic Recovery Forum held by the Oil and Gas Authority in Aberdeen: “We want to squeeze every last drop at the right economic price out of the North Sea basin. I think we’ve underestimated what we still have in terms of reserves,” for which she was criticised by Aberdeen’s own MP. Does she speak with a forked tongue? Time will tell.

It’s not just action on climate change

Margaret Thatcher planting a tree sapling

Margaret Thatcher 30 years ago warned the world about climate change 
Thirty years ago the Conservative’s patron saint, Margaret Thatcher, was one of the first politicians to warn the world about climate change. She went on to say that “no generation has a freehold on this Earth. All we have is a life tenancy – with a full repairing lease.”

Former Conservative Party leader David Cameron’s coalition government in 2010 promised to be “the greenest government ever”, although his efforts were undermined by his own Treasury and by political appointments to the Department for Environment, Farming and Rural Affairs (DEFRA).

Yet this shows that conservation is, in Britain at least, naturally a core conservative ideal, even though, the Conservative Party being a broad church, it does contain a number of vociferous climate sceptics, such as former DEFRA Secretary of State Owen Paterson and former Chancellor of the Exchequer Nigel Lawson.

Whilst the environmental credibility of the current Conservative leader Theresa May is debatable, the current DEFRA secretary, Michael Gove, has been praised by Greenpeace, WWF and, albeit cautiously, Green Party leader Caroline Lucas.

Michael Gove, Defra Secretary of State
Michael Gove, Defra Secretary of State

Gove has seen an opportunity to rebrand himself as a progressive since his self-inflicted downfall due to a botched bid to lead his party after his team-up with Boris Johnson drove the pro-Brexit bus to victory and kicked out David Cameron from the post. Theresa May, in a surprise move, put him in charge of DEFRA, since when he has hardly seemed to be the same person as the Gove who was once in charge of the Education Department, overseeing a return to ‘traditional teaching values’ and alienating virtually every teacher in the country.

His promises (and most of them are still promises in the form of consultations) include banning ivory sales in an effort to reduce elephant poaching, banning all petrol and diesel cars and vans by 2040 (critics want it sooner), committing to safeguarding coral reefs, introducing a deposit scheme for all drinks containers across England, support for a total ban on insect-harming pesticides across Europe, and making farming subsidies dependent on farmers proving that they are genuinely improving biodiversity and soil quality.

The Brexit factor and Trump’s trade issues

Much of the UK’s environmental policy derives from its membership of the EU, which has raised standards arguably well beyond what they would have been otherwise.

Concern has been loudly heard that, post-Brexit, these protections will be weakened. The British public overwhelmingly backs retaining these food and environmental standards. In response, Gove has promised a consultation on a new, independent body to enforce environmental law, although the future extent of its powers is uncertain.

But Trump’s White House has stressed that any new trade deal it forges with the UK cannot include current EU food standards that block the import of American products such as chlorine-washed chickens, hormone-treated beef, and crops washed with various herbicide chemicals. Further environmental battles over trade deals clearly lie ahead.

The Climate Change Act

It remains a small miracle that the 2008 Climate Change Act, a product of the Labour government, has not been repealed by the Tories. It is a phenomenal piece of legislation that enshrines in law a long-term goal of reducing greenhouse gas emissions by 80 per cent by 2050 relative to 1990 levels.

This impels the UK economy towards a more sustainable future and is the underlying reason for much of the above. Under it, every five years, the government of the day – of whatever hue – must adopt a legally-binding carbon budget that sets, 15 years ahead, limits on the economy’s total greenhouse gas emissions for the following five year period.

If that sounds ludicrous to some right-wingers, it is what businesses and investors want, because it gives them the time and confidence to plan ahead. It has been extremely successful.

If Australians seek allies in persuading Abbott to change his tune, they really need to look no further than Britain’s Tories and their business supporters.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Thursday, April 12, 2018

Troubling questions over Macquarie’s purchase of the Green Investment Bank

When Macquarie Bank bought the UK’s Green Investment Bank it ignited a storm of opposition. There was doubt the Aussie bankers would uphold the original ambitions of the GIB, because these ambitions are not sufficiently protected. That’s now the conclusion of an investigation by British MPs on the UK House of Commons Public Accounts Committee.

Furthermore, the MPs have not picked up the fact that it is no longer under full government control how the £200m foreign aid is spent that is supposed to support clean energy and climate change mitigation projects in developing countries under Britain's international agreement obligations.

A version of this post was first published on 3 April on The Fifth Estate.

Labelled a “Vampire Kangaroo” in 2013 by the Sunday Times, a view supported by a BBC investigation into Macquarie’s ownership of Thames Water, the sale was widely condemned at the time.

The committee of MPs, supported by the National Audit Office, was charged at looking at whether the controversial sell-off was conducted properly and whether the GIB performed well in the past and would fulfil its intended function to invest in promising new sustainable technologies in the future.

Since it was created in 2012, the UK Green Investment Bank plc (GIB) has been successful in attracting private investment into some sectors of the green economy, such as offshore wind projects, according to its former chief executive Shaun Kingsbury.

However, Alex Chisholm, Permanent Secretary for the Department for Business, Energy & Industrial Strategy (BEIS), the government department which set it up, told the MPS it cannot be sure whether the GIB achieved its intended objectives of “encouraging investment in the green economy and creating an institution that lasts”.

This is because the government chose to sell the bank before fully assessing its impact. The decision was based purely on a desire to reduce public debt and secure cash for the public purse from the sale.

Macquarie bought the bank for £1.6 billion in August 2017 in a deal hailed in The Australian Financial Review as “a potential game changer for Macquarie globally because the assets, skills and connections it brings to the group will give it an edge in two of the biggest investment megatrends over the next several decades – renewable energy and impact investing”

Certain measures were attached to the sale intended to protect the bank’s original Green Purposes, which cover greenhouse gas emissions, efficient use of natural resources, the natural environment, biodiversity and environmental sustainability. However the MPs found that these are not sufficient to ensure that the bank is an enduring institution.

“It is unclear whether Green Investment Group (GIG, as it has been rebranded under Macquarie’s ownership) will continue to support the government’s energy policy, or continue to have an impact on the UK’s climate change goals,” the MPs say, declaring it as “a misjudgement” that the Department has so little assurance over GIG’s future investment in the UK and in emerging technologies, which are crucial to ensuring that the UK’s green commitments are met.

Sir Geoffrey Clifton-Brown MP, the Committee’s Deputy Chair, called the manner of the sale “deeply regrettable”. “The rebranded Green Investment Group is not bound to invest in the UK’s energy policy at all, nor to invest in the kind of technologies that support its climate objectives,” he said.

“Had the government been shrewder it could have secured a better return for taxpayers. It was a mistake to repeal legislation protecting GIB’s green investment obligations without securing firmer commitments from potential buyers.”

Ironically Macquarie actually told the MPs that such commitments did not affect the price it was prepared to pay, and indicated that the government could and should have strengthened these commitments contractually.

How successful was the Green Investment Bank?

The GIB attracted substantial private investment into some sectors of the green economy, such as offshore wind. By March 2017, GIB had committed $6.21 billion to fund or part fund 100 projects, and attracted $15.71 billion of private capital.

These projects were primarily in offshore wind, and waste and bioenergy, with some in energy efficiency and onshore renewables.

Many other technologies, such as tidal power and carbon capture and storage, were judged by the bank’s board to be not sufficiently developed to be suitable commercial investments. But because the BEIS did not give clear criteria, it could not judge whether GIB was addressing failures in the green energy market or only backing projects that would have been winners anyway.

GIB investment activity between October 2012 and March 2017, by sector
Sector Offshore wind Waste & bioenergy Energy efficiency Onshore renewables Total
Number of projects 11 37 35 17 100
GIB capital committed (£ millions) 2,211 756 292 150 3,409
Private capital mobilised (£ millions) 4,660 3,479 286 150 8,575
Average total transaction size (£ millions) 625 114 17 18 120

Will Macquarie continue its mission?

When it acquired GIB, Macquarie agreed to retain its five Green Purposes, the protection of which was the aim of the Green Purposes Company, which BEIS had established previously and given its trustees powers to veto any changes.

But this protection relies on Macquarie continuing to fund the Green Purposes Company and the powers of the trustees do not extend to approval of investment decisions.

Macquarie has committed GIG to investing or arranging over £3 billion investment in green energy projects over three years after purchase but these commitments are not legally binding and rely on a number of factors, including market conditions and future government policy decisions.

Mark Dooley, global head of green energy, Macquarie, told the MPs that GIG is not currently required or incentivised to invest in the UK, or innovative technologies, or to focus on any of GIB’s five Green Purposes.

MacBank wants government support to stick to the plan

According to Macquarie, for the majority of potential investments in the UK it would want financial support from the government. These include the proposed world-leading tidal lagoon in Swansea, which, lacking government support based on a high strike price and an environmental impact report, seems unlikely to go ahead.

Since it became the Green Investment Group, it has continued to invest in safe sectors – wind and waste-to energy projects – rather than emerging technologies.

David Fass, head of Macquarie Group’s European operations says Macquarie will use the GIG to channel “billions in renewable energy deals over the next decade”… “unless Macquarie doesn’t meet the expectations of a range of stakeholders”.

A valuable asset in green investment definition

One asset of GIG which is little appreciated, but could be worth a fortune, according to The Australian Financial Review, is its proprietary definition of green investments which is backed up with a unique database, presumably acquired at least in part from the GIB.

“This piece of intellectual property could well be sold or brought to market in partnership with financial information companies, Standard & Poor’s or Moody’s Investors Service. A product that secures investor trust in green investments could be extremely valuable,” it says.

The UK Climate Investments LLP

As a result of taking over the Green Investment Bank Macquarie now owns UK Climate Investments LLP. This was set up three years ago in March 2015 to invest the £200m commitment Britain (like most developed countries) has under international climate change agreements to donate to projects in developing economies that adapt to climate change and promote “green growth” in East Africa, South Africa and India.

For over two years no investment was made, but in autumn last year Macquarie announced £12.4m of the £200m had been pledged to Lightsource to develop and construct up to a total of 300MW of PV projects in rural India.

It’s still unclear who banks (and obtains interest from) the remaining cash.

The UK National Audit Office (who conducted some of the research for the MPs’ report) told me last September following a Freedom of Information request that their remit for this research (and therefore the MPs’ report) did not cover the UKCI. They did say that $22.65m of the total amount had already been spent – on consultants to do market surveys, of no direct benefit to developing countries.

It’s unclear how much say the UK government now has in how this money is spent, but surely it should be spent to the benefit of the poor in developing countries trying to fight climate change rather than the shareholders of a private investment company?

These countries are sick of waiting for the money to come to them.

Sir Geoffrey Clifton-Brown concludes his comment on the House of Commons report on the GIB by saying: “There are broader lessons here—not least for how government evaluates public assets and, when relevant, prepares them for sale.”

And the net benefit to the British taxpayer of all of the sale? Just £126 million.

David Thorpe is a UK based writer. His two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Tuesday, April 03, 2018

Financing industry gears up to bankroll a more sustainable future

Emmanuel Macron, Valdis Dombrovskis and Michael Bloomberg
Emmanuel Macron, Valdis Dombrovskis and Michael Bloomberg
A version of this article first appeared on The Fifth Estate website on 27 March.

Efforts to close the urban green investment gap need to be urgently scaled up to provide access to technical support and financing for low-carbon infrastructure for thousands of cities, the European Union’s High Level Conference on Sustainable Finance has heard.

The conference saw a first-of-its-kind call made by a powerhouse of individuals and bodies: French president Emmanuel Macron; the Global Covenant of Mayors; Michael Bloomberg, philanthropic financier, former NYC mayor and UN climate change special envoy; European Commission vice-president for the Energy Union Maroš Šef?ovi?, the presidents of the European Investment Bank; the European Bank for Reconstruction and Development and the World Bank Group.

The aim is to raise awareness among local authorities, civil society organisations, businesses, private investors and philanthropies about the investment needs for climate action in urban areas and the available financing solutions; and to provide dedicated advisory services and foster the financing of urban climate action projects.

European Commission vice-president for financial stability Valdis Dombrovskis said: “There are two reasons why we should climate-proof our investments, and foster a broader view of risks: first, the impact of climate change can threaten financial stability and lead to major economic losses through floods, land erosion or draughts. And second, because of the risk of stranded assets. If we wake up too late to the reality of global warming, many of today’s investments could end up being redundant.”

Three months ago, at the One Planet Summit hosted by President Macron, Global Urbis was launched, which is a global initiative to provide cities with financing and technical assistance to mobilise private capital. Urbis is a dedicated advisory platform for investment support to cities. The call for interest will be piloted at the Global Climate Action Summit in San Francisco in September this year.

The European Commission’s Sustainable Finance Action Plan, meanwhile, will make it easier to meet the estimated €180 billion (AU$289b) a year price tag for achieving the EU’s climate goals – an investment requirement that rises to €270b (AU$434b) if energy, transport, water and waste sector are also included. The plan comes hot on the heels of a call from top European financiers to the EU to get radical on financing green projects.

The EU’s climate and energy targets are by 2030 to reach a minimum 40 per cent cut in greenhouse gas emissions compared to 1990, at least 30 per cent (pending finalisation) energy savings compared with business-as-usual, and at least a 27 per cent share of renewables in final energy consumption.

Meeting the challenge

With over €100 trillion (AU$161t) in assets, the financial sector must be part of the solution. There is huge potential for green investments. However, the EU has recognised that engaging private finance requires systemic changes to its own financial eco-system.

Following the engagement of a high-level expert group, the plans announced are for far-reaching reform to its system, reform that Mr Dombrovskis said at the launch “could set the global benchmark for sustainable finance… to support a sustainable future for generations to come”.

The Commission will also establish a new single investment fund to provide financial support for sustainable investment for all EU policies.

The action plan will address five key challenges to the provision of sustainable finance:
  • there is no common definition of sustainable investment, and so a universal classification for sustainable activities will be developed
  • to avoid a risk of “greenwashing” by banks of existing or other investment products, standard labels between financial products will be established to give investors certainty
  • to stop banks and insurers giving insufficient consideration to climate and environmental risks there will be a study to discover if capital requirements should reflect exposure to climate change and such risks
  • to reduce the likelihood that investors might disregard sustainability factors or underestimate their impact, the duties of institutions will be clarified to make sure they consider environmental, social and governance (ESG) issues in their investment decision processes and are more transparent towards their clients
  • to address the fact that too little information is often provided to shareholders on corporate sustainability-related activities there will be efforts to encourage non-financial information disclosure in company reports.
In total, these amount to the provision of more reliable information for investors, sustainability and risk management.

Furthermore, to combat short-termism in investment decisions, the Commission is inviting the European Financial Supervisory Authorities to collect evidence of undue short-term pressures in capital markets on corporations and consider whether steps need to be taken to combat these.

Green bonds and ecolabels

Most of this work will take about a year and so by the third quarter of 2019 the European Commission is expected to adopt acts on the content of the prospectus for issuing green bonds and produce an EU ecolabel for financial products based on the previous highly successful EU organic label and the EU product eco label.

It will also provide benchmarks for institutional investors and asset managers that are harmonised across the EU and a list of measures to be taken to require greater disclosure of non-financial information in company reports and to incorporate sustainability in prudential requirements.

An EU sustainable taxonomy would mean a uniform and harmonised classification system for green investment. This is seen as essential to determine which activities can be regarded as sustainable across the EU and to strengthen banks against economic shocks, improve risk management and ultimately ensure financial stability.

It would provide appropriate signals to economic players on which activities are considered sustainable.

This will all help to create certainty for investors who want to invest with sustainability objectives in mind.

The European Investment Advisory Hub – the EU’s gateway to investment support – is providing technical assistance to the development of projects. This helps to build capacity for projects that are often technologically, economically and legally complex. It also has a role co-operating with local partners such as promotional banks across member states to provide more match-making and increase local accessibility.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Monday, March 19, 2018

Top retailers demand zero carbon building standard

A group of retailers – whose members include Aviva, BT, Cemex, Ikea, Kingfisher, M&S, Nestle, Sky and Tesco – have criticised the UK government for not doing enough to improve energy efficiency in non-domestic buildings and asked for a zero carbon building standard to be set.

This piece first appeared on The Fifth Estate on 19 March 2018

They want to see a target for the UK’s building stock to be nearly zero carbon by 2050, and the establishment of a new zero carbon buildings target to be enforced by 2020, to be followed by a truly net zero carbon buildings standard.

Known as the Aldersgate Group, they took a year to look at structural challenges in financing the creation of low carbon infrastructure, and, based on interviews with businesses and investors, found that a chief problem is a lack of clear policy goals to help unlock private sector finance in order to meet decarbonisation targets.

As part of 30 recommendations for government, business and investors in their new report, Towards the new normal: increasing investment in the UK’s green infrastructure, they are urging the UK government to commit to support the growth of green investment over the long term, set better targets and to “enforce more strictly” existing energy efficiency policies.

They want an increased ambition to upgrade the UK’s domestic buildings to EPC band C by 2035 broadened to apply to commercial buildings.

Alex White
Alex White
Alex White, the report’s lead author and senior policy officer for the Aldersgate Group, said: “Over the next three decades, the UK needs hundreds of billions of private investment in green and resilient infrastructure to meet the objectives of the Clean Growth Strategy, Industrial Strategy and 25 Year Environment Plan. But investment isn’t happening fast enough on its own.

“The government must catalyse action on green infrastructure investment now to move the financial system towards a new normal if we are to meet our policy goals cost effectively while maximising benefits for UK plc.”

The group’s report suggests government could engage a wider base of investors by establishing the potential size of the market, and creating tax breaks for energy efficiency investment by businesses. It says government could help boost the uptake of service agreements with energy supply companies by offering short-term guarantees on contractual risks, such as one of the parties going bust.

Government should also lead by example and mandate greater energy efficiency across all publicly owned building stock, the Aldersgate Group says. This would create a project pipeline, increase investment flows and potentially lower costs for private sector firms.

Other recommendations include adjusting financial regulations to encourage long-term investment in green infrastructure, such as introducing a legal duty for all fiduciaries (such as pension fund trustees) to consider financially material environmental and social governance (ESG) risks.

All planned infrastructure spending should pass a “green” test with sustainability requirements in all public procurement, including supporting local government with standardised power purchase agreements and energy management services contracts, Aldersgate Group says, to avoid locking in emissions for the future and to maximise resilience against flooding and future climate-related risks.

Finally, the group wants to see the issuing of a sovereign green bond and municipal green bonds to help fund the delivery of low carbon projects and address a potential drop in financing from institutions such as the European Investment Bank.

The report is released in conjunction with four separate briefings, which explore in detail several of the specific barriers and solutions to key types of green infrastructure investment:

  • Increasing investment in domestic energy efficiency
  • Increasing investment in commercial energy efficiency
  • Increasing investment in low carbon power
  • Increasing investment in natural capital
Steve Waygood, chief responsible investment officer for Aviva Investors, welcomed the call to “use the dormant assets within the insurance and investment sectors to introduce a national financial literacy campaign to educate people about how their money is invested and how this shapes the world they retire into”.

“This would help create sustained demand for sustainable investment, helping to grow the UK economy on a longer term and more sustainable basis for the future.”
Emma Howard Boyd
Emma Howard Boyd
Emma Howard Boyd, chair of the UK Environment Agency, commented that “some businesses are already alive to the risks and opportunities presented by climate change, but not enough”.

She said that the UK could show international leadership “with financial innovation to counter increased risks from droughts and storms”.

“The government’s Green Finance Taskforce is currently discussing how to accelerate investment in resilience, so this report is timely and helpful.”

Boyd is a member of the taskforce herself, which is a cross-departmental initiative working with industry to accelerate the growth of green finance. She says there are plenty of investment opportunities presented by climate resilience.

“Flood protection is good for the economy,” she argued recently. “It allows companies to do business in severe weather by keeping their properties open, and their supply chains moving, as well as the transport links that bring in customers and trade.”

Are pension funds ready for climate change?

But fiduciary bodies such as pension funds have a long way to go before they can appreciate the risks. A self-selecting survey carried out by the trade magazine Professional Pensions suggested continuing widespread misunderstanding. It found that 53 per cent of trustees, scheme managers and pension professionals did not see climate change as a financially material risk to their own or their clients’ portfolios.

Similar, qualitative research by the pensions law firm Sackers indicates that many trustees do not pay significant attention to ESG issues: “[Trustees]… consider ESG and external governance reviews to be low priorities. Some participants were not sure what ESG meant … Some see ESG as a distraction or potentially detrimental to achieving the scheme’s goals.”

The Financial Conduct Authority is currently considering whether to make reviews of such risks mandatory.

Mary Creagh
Mary Creagh

As part of a wider inquiry, Mary Creagh, the chair of the UK’s cross-party Environmental Audit Committee, last week wrote to the top 25 pension funds in the UK to ask how they manage such risks.

She said in her letter: “The climate change risks of tomorrow should be considered by pension funds today. A young person auto-enrolled on a pension today may be 45 years away from retirement. Over that timescale these climate change risks will inevitably grow. We are examining whether pension funds are starting to take these risks into account in their financial decision making.”

Pension funds have yet to respond to her, as has the government to the Aldersgate Report’s recommendations. Business as usual will not change without concerted effort and stimulus, and legislation, procurement strategies and tax breaks are three tools the government should deploy.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference.  He’s also the author of  Energy Management in Building and Sustainable Home Refurbishment.

Tuesday, March 13, 2018

In a massive sustainable investment market, energy efficiency offers huge returns

One in every five dollars invested professionally in the US is now invested sustainably. And while investment in projects that reduce greenhouse gas emissions are rising globally, the market for energy efficiency remains under-satisfied compared to its potential and the market for renewable energy investment. Here’s why.

A version of this piece appeared in The Fifth Estate on 6 March 2018

The size of the market

It can be confusing for beginners. There are green bonds; sustainable, responsible and impact investing (SRI); and environmental, social and governance (ESG). But whatever you call it, more and more investors are seeing the benefit of putting their money into sustainability.

According to the last Global Sustainable Investment Review, at the start of 2016, global sustainable investment assets reached US$22.89 trillion (AU$29.47t), a 25 per cent increase from 2014. Europe accounted for over half of these assets (53 per cent) and the United States 38 per cent.

The market size of SRI investing in the United States alone was US$8.72 trillion (AU$11.23t) as of 2016 – double what it was just four years previously – representing one in every five dollars invested, according to SIFMA, an association of broker-dealers, banks and asset managers for businesses and municipalities.

How it works

Impact investing refers to investments “made into companies, organisations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return”.

The Global Impact Initiative is a global champion of impact investing, dedicated to increasing its scale and effectiveness around the world. It was founded by Giles Gunesekera in 2015. Speaking alongside last month’s Cayman Alternative Investment Summit he said he started it “to provide investors – foundations, family offices, pension funds, endowments – with bespoke solutions that would allow them to allocate to impact investing strategies”.

“We map these bespoke impact investing strategies to the UN Sustainable Development Goals (SDGs) and utilise professional investment managers alongside social impact investment firms to ensure the strategies we build for clients meet their financial and social impact targets.”

Schemes often use the ESG framework:

  • Environmental: How is the company disposing of hazardous waste? Is it managing carbon emissions? To what extent is it meeting environmental regulations?
  • Social: Does the company support philanthropic and community-focused initiatives? Are employees provided with access to health care and other key benefits? Is leadership promoting diversity?
  • Governance: Are company leaders appropriately qualified for the role, and are they communicating a coherent strategic vision? Are their compensation packages appropriately aligned with performance? Is the C-suite communicating effectively, and transparently, with shareholders?
Gunesekera says that pension funds hold the key to doing impact investing at scale. Australian and US pension funds are behind those in Europe and Canada when it comes to embracing impact investing because their trustee boards behave very conservatively due to their size. But he adds that “it will only be a matter of time before they catch up”.

His colleague Don Raymond of Alignvest Investment Management believes that “impact investing should be integrated across all investments, and not just part of a separate portfolio.”

Increasing demand and the problem with energy efficiency

While all are in agreement that impact investing is increasing, it must be driven by demand, part of which is the issuing of green bonds by, for example, municipalities to promote investment in energy efficiency.

According to Steven Fawkes of the Investor Confidence Project (Europe), this too is increasing, but he says that “more investing in energy efficiency is going on outside of the green bonds market because green bonds themselves are limiting in terms of what you can use the money for”.

There are also greater transaction costs, principally in terms of verification. Fawkes cites by way of example the fact that in the US “many more buildings are constructed according to the LEED gold standard (the highest certified standard for new energy efficient buildings) than are publicised because while the standard in itself is open access certification is expensive and it is easier for developers not to bother to certify”.

Investment in these projects would not be recognised by impact investment or green bond statistics because they would likely be financed in a more conventional investment market.

For the market to grow, therefore, transaction costs need to be reduced and offerings become more investor-friendly.

It is presently much easier for investors to invest in a renewable energy project than an energy efficiency one because the capital investment, project management, technology and return on investment (ROI) are much more easily accountable. This is partly because the ROI on energy efficiency is less predictable due to the influence of human behaviour on the outcomes.

This is exemplified by the following graphs:

The growth of the portfolio of the GCPF and the types of projects invested in. Renewable energy investments have secured more than double the CO2 savings of those in energy efficiency (buildings and industrial processes), according to their annual report for 2016, (although this is by outcomes not by investment type, which the report does not quantify).

Moreover, especially in developing countries, which are typically way behind in terms of understanding and implementing energy efficiency, the early rewards for implementing an energy efficiency program typically yield between seven per cent and 50 per cent returns in just a few months – without any capital investment at all. The savings come from changes in behaviour. Fine for the company, but of no interest to investors.

Yet this is where the greatest potential lies. Non-OECD economies have a higher energy intensity than OECD economies, partly because they tend to be more focused on growth at all costs, and on energy-intensive industries such as the manufacturing sector.

Returns can be even better than 50 per cent. According to Bettina Schreck, a project manager for the South American industrial energy efficiency program of the United Nations (UNIDO), in Ecuador “a government macroeconomic study assessed the cost-effectiveness of its monetary contribution to an industrial energy efficiency program in terms of direct energy savings by analysing the average savings for all sizes of industries”. This was based on her organisation’s experience in other countries.

The conclusion?

“Whether the viewpoint was from private or public sector, and calculated over the three years of the project or the lasting benefits beyond, the internal rate of return ranged from 50 per cent to 170 per cent and the payback period was approximately one year. The conclusion was that investment was beneficial from both social and private enterprise perspectives.”

For any investor, that would be a massive benefit.

The size of the market for energy efficiency

The potential size of the market for energy efficiency is huge compared to other sectors in impact and climate finance. The global energy efficiency opportunity will require global investments of around US$50 billion (AU$64.4b) a year over the next few decades according to the Global Climate Partnership Fund (GCPF). It also represents a lower cost investment for the same emissions reduction than other types of investment such as renewable energy.

There are many global trends requiring such investment: the increase in energy demand management, storage, renewable and on-site generation, and net metering; the development of value chains in climate-friendly technology; sustainable cities; reducing wastage in the water sector; the growth of the circular economy; and the growth of digitisation – cheaper metering and sensors, the Internet of Things (IoT), cloud computing and big data analytics.

But there is a huge challenge to make unlocking energy optimisation easier than it currently is. It is not always investor-friendly.

In a recently conducted survey, the Global Climate Partnership Fund investment manager responsAbility asked green lending experts from the developing world about their expectations and experiences in the area of green lending. They found that the main drivers were client demand and international support – green branding and regulatory incentives.

Awareness has also improved.

“The most important change is in the knowledge of clients. Previously, most of them had no idea what energy efficiency financing is. Now they know a lot more about it,” head of green lending Luke Franson said.

A lack of green lending expertise was perceived among survey respondents as the greatest threat to scaling-up energy efficiency finance – not, surprisingly, low fossil fuel prices.

“The mindset of entrepreneurs who see capital expenditure as a waste and not a measure to drive efficiencies is a challenge,” said Gustavo Adolfo Calderón Palma of Banco Pomerica.

Impact investment tools are constantly being refined and developed to make these transactions and their attractiveness easier and easier to see.

UNIDO, for example, is working on a more standardised assessment method for projects with cost-benefit analysis at national and business levels, and ways of measuring the non-economic benefits of EnMS implementation at both levels to build the business case. This will include a software tool for companies to identify multiple sources of added value.

The benefit of an EnMS

For energy efficiency, it is vital that a company or organisation has an energy management system (EnMS) in place that uses the ISO 50001 standard.

ISO 50001 was designed “to enable an organisation to establish the systems and processes necessary to improve energy performance, including energy efficiency, use and consumption”.

It is applicable to all types and sizes of organisations irrespective of other conditions and can be applied in all sectors. It dovetails with other management standards such as ISO 9001 (quality management) and ISO 14001 (environmental management).

Although the introduction of EnMS always leads to no-cost and low-cost savings, long-term and larger energy savings will come about through investment projects. According to Marco Matteini, another UNIDO project manager who also worked on developing this standard, “Adopting ISO 50001 can help boost investment by better preparing firms to receive external investment as well as optimising capital expenditure. The use of EnMS also improves the ongoing monitoring of project performance after investment.”

This is because having an EnMS helps management to recognise the value of energy efficiency, therefore making approval of energy saving capital projects more likely.

Presently only 10 per cent of energy efficiency projects are externally financed, and industrial companies often find difficulties with decision making in areas beyond their core business. According to UNIDO’s Rana Ghoneim this means that a desirable tool for investment in the future will be “some kind of underwriting toolkit and templates for energy efficiency investment”.

One new tool is a new version of the European SRI Transparency Code, which is geared towards guiding asset managers to meet relevant requirements for their products in SRI. It’s been developed by Eurosif to be in line with the recommendations made by the Task Force on Climate-related Financial Disclosure.

A free, online database for investors and financial advisors has also just been published by Impact Assets, a subsidiary of Calvert Impact Capital, listing 50 private capital fund managers that deliver social and environmental impact as well as financial returns. If you’re new to this, then it’s a good place to start to begin research on the impact investing sector.

Impact investment is clearly growing, from being a small kid on the block to a major player.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Thursday, March 08, 2018

Barcelona: The world’s most radical city?

Spain’s Barcelona is spawning a new era of citizen-led activities that rely on co-operatives organising a range of activities, often based on barter markets and including a network of common stores, an alternative currency called the “eco”, a cooperative social fund for financing community projects and a “basic income program” for paying members for their work – all while heading down the smart city/low energy route. What does it mean to be a self-proclaimed “fearless city”?

[First published on The Fifth Estate on 27 February 2018]

Barcelona has a long and radical tradition going back to the anarchist collectives documented by George Orwell in Homage to Catalonia, his book about his experiences fighting alongside anarchists against the fascist forces of General Franco. It is unsurprising, then, that, following the particularly severe effect upon Spain of the banking crisis of 10 years ago, creative grassroots responses to austerity have emerged.

Grassroots mayor

Barcelona's mayor Ada Colau
Barcelona's mayor Ada Colau

Barcelona is home to a radical grassroots and citizen-led movement that coalesced in June 2014 under the “Yes we can” (Podemos) slogan into the platform Barcelona en Comú, an organisational structure for individuals, activist groups and political parties. This linked networks of local assemblies allowing people to engage in policy decisions.

Ada Colau, a former housing activist, astonished everyone when in June 2015, as part of Barcelona en Comú, she was elected mayor – the first woman to hold the office.

“Democracy was born at local level, and that’s where we can win it back,” she declared.

She had been a founder of the Plataforma de Afectados por la Hipoteca (Platform for People Affected by Mortgages) that was set up in 2009 in response to the rise in evictions caused by unpaid mortgage loans and the collapse of the Spanish property market (she co-wrote a book, Mortgaged Lives, based on her experiences).

In one of her first speeches Colau called for “an end of the political class removed from the people”.

She was not alone: the same year saw radical mayors elected in Madrid, Valencia, Zaragoza and La Coruña and together they announced the Rebel Cities network – a group of cities confronting central government, devising their own policies, and making a worldwide plea for other cities to join. A handbook is available for other cities to follow.

The Catalan Integral Cooperative

From the same movement that gave birth to Colau came the Catalan Integral Co-operative (Integral is perhaps best translated as holistic). Its goal is to build an anti-capitalist co-operative structure not just for the benefit of its own fee-paying members but for the commons as a whole.

“The main objective of the CIC is nothing less than to build an alternative economy capable of satisfying the needs of the local community more effectively than the existing system, thereby creating the conditions for the transition to a post-capitalist mode of organisation of social and economic life,” writes George Dafermos, author of a new report on the co-operative.

The AureaSocial building
The AureaSocial building

Since its formation seven years ago, headquartered in the AureaSocial building, it has been actively involved in developing infrastructures as diverse as barter markets, a network of common stores, an alternative currency called the “eco”, a cooperative social fund for financing community projects and a “basic income program” for paying members for their work.

Its activities are not confined to Barcelona, but extend across Catalonia.

The CIC is a collection of about 10 committees with responsibilities for different topics. For example, the economic management committee, the legal committee, the IT committee and so on. Each works largely autonomously but to coordinate their activities, the co-op holds “permanent assemblies” once a month where members make collective decisions based on consensus.

It has about 600 “self-employed members”. There are also 20 self-managed pantries run by local consumer groups wishing to purchase products made locally or by producers associated in other parts of Catalonia, chosen through an online list of over 1000 items supplied by currently 70 producers and distributed by vans.

According to Dafermos, the co-op is “based on direct exchange and the use of alternative community currencies”.

“The way this ecosystem operates represents the model of the autonomous public market envisioned as a means of satisfying the needs of the local community… a model for the transition to a post-capitalist economy.”

A minimum income scheme

This radicalism extends to the official level. The city is one of several places in the world that are trialling a minimum income scheme – B-MINCOME – in two of the city’s poorest barrios. Here, citizens receive a guaranteed minimum level of income. Receipt for some of them is conditional upon agreeing to some level of community work, by volunteering. Others have other conditions, or none at all, and the results of the trial will be evaluated to determine the most successful model.

The designers of the scheme – which is supported by a grant from Urban Innovative Actions, a European Commission initiative that supports projects investigating “innovative and creative solutions” in urban areas – took experience from the governments of Finland, the Canadian province of Ontario and the Dutch municipality of Utrecht, all of whom have designed guaranteed income experiments in their own areas.

Barcelona is going smart city as well

Barcelona is also smart in the digital and eco senses of the word. As one of the leading smart cities worldwide, 50 per cent of street lighting are LEDs fitted with sensors to switch on when they detect motion and dim when streets are empty, saving 30 per cent of previous energy.

Around 19,500 smart meters monitoring and optimising energy consumption have been installed across the city, including a sensor system helping drivers to locate available parking spaces, reducing congestion and emissions.
There is a Bicing app, providing updated information on the location of public bike stations and bike availability, and the city has one of the biggest free public WiFi networks in Europe.

Smart technology is also used to improve the speed and efficiency of the city’s new orthogonal bus network, and digital bus shelters are also in place. The proposed new bus network is based on an orthogonal grid scheme, which has emerged as the most efficient in urban systems. This network ensures the isotropy of the territory – equally covering all parts of the municipality. This improves connectivity between the lines and accessibility for all users.

The new scheme is not only functional but also more “readable”, and is structured similarly to the metro and a network becomes easily understandable. Furthermore, the great majority of targets are achieved with a single transfer, simplifying use of the bus network and avoiding the current need to know each line individually.

Superblocks road de-trafficking scheme in Barcelona
Superblocks road de-trafficking scheme in Barcelona

Superblocks cutting traffic

All of this is helping with the superblock project, to be piloted in four areas in the city.

This will remove traffic from city streets to create pedestrian-centric neighbourhoods that improve health and sustainability, and reduce pollution. It was adopted as a centrepiece of the city’s mobility plan in 2015 to remove cars from within the superblocks, “liberating” 70 per cent of the city’s land for public use, according to Salvador Rueda, director of the Urban Ecology Agency of Barcelona.

Focus for change

Now calling itself a “fearless city”, Barcelona is positioning itself as a focus for a movement, hosting a Fearless Cities summit in June and a Smart City Expo in November, on defining cities as radical, citizen-empowering places.
According to Dr Bertie Russell, research fellow at the Urban Institute in the University of Sheffield in the UK, Barcelona and Madrid’s decidim process of citizen involvement in decision-making is good because it allows citizens to set the policy agenda, not just react to it.

He supports the trend to “establish non-market, non-public sector initiatives – urban commons – and recognises their right to self-determination”, citing as another example, “Naples’ decision to create a Department of the Commons and provide a legal status for previously squatted social centres.”

A mayor who has reduced her salary and invites other mayors to visit

Local activist Edu Salvador also thinks this is a good approach: “Through her leadership in international conferences of cities, Colau has been active in bringing to Barcelona mayors from main progressive cities of the world. She is a responsible mayor, and has reduced her salary – the salary of the previous mayor was outrageously high.”

Barcelona – home of Antoni Gaudí – is continuing to be every bit as revolutionary as that unique man’s architectural style, pioneering 21st century solutions that address the kind of citizen disillusionment with power that has fuelled reactionary movements elsewhere in the world in the past few years. But by positioning itself within an alternative movement, it is determined that its ideas can be replicated and supported elsewhere.

Read David Thorpe’s surprisingly uplifting post apocalyptic short fiction work set in Barcelona here: For The Greater Good.

David Thorpe’s two new books are Passive Solar Architecture Pocket Reference and Solar Energy Pocket Reference. He’s also the author of Energy Management in Building and Sustainable Home Refurbishment.

Thursday, March 01, 2018

Weekend course in Sussex on One Planet Development

Interested in #oneplanet living? Want to find out more? Come on a weekend residential course in April in the beautiful retreat of @Emerson_Colleg in Sussex.

Find out about the most sustainable ways to live and nurture yourself and the planet.

More info: http://www.emerson.org.uk/events-at-emerson/item/weekend-workshop?category_id=8