Private Capital for Clean Energy

LONDON – As the US presidential election approaches in November, climate change emerges as a pivotal issue. A potential second term for Donald Trump could result in an additional four billion tons of carbon dioxide emissions by 2030, potentially undoing the climate progress achieved under President Joe Biden. Concurrently, Europe’s shift to the right and complex coalition politics are hindering global climate initiatives, leaving capital markets as a possible savior for the planet. The urgency for robust climate policies, such as carbon pricing and the removal of fossil-fuel subsidies, is underscored by the need for collective action. Without these measures, there is little incentive for asset owners and managers to commit to reducing CO2 emissions. The challenge lies in whether these financial stakeholders can guide markets toward climate objectives while still generating adequate financial returns. Investors are encouraged to engage with high-emitting companies rather than divesting from them. A recent study highlighted that high-emitting "brown" companies produce significantly more emissions than their "green" counterparts. Divesting from these firms may inadvertently hinder the necessary investments in clean energy. Therefore, institutional investors must incentivize emissions disclosures from carbon-intensive companies to mitigate their negative market impacts. Despite concerns over green investment slowdowns, the Inflation Reduction Act (IRA) has spurred significant clean-energy investments, totaling $240 billion in its first year. With incentives like $369 billion in tax breaks, the IRA has garnered support across various political lines, emphasizing that climate action remains feasible even amid political challenges. As 2024 approaches, it is poised to be the hottest year on record, highlighting the urgent need for climate-focused strategies.