Yvo de Boer: Private Capital Must Take on The Green Growth Challenge

This is the recommendation coming from the former Executive Secretary of UNFCCC, Mr. Yvo de Boer, in an exclusive interview with Monday Morning.

Today Mr. de Boer is the Special Global Advisor on Sustainability and Climate Change at KPMG and has recently joined the Green Growth Leaders, which is founded by Dong Energy, Realdania, the City of Copenhagen and Monday Morning.

Mr. de Boer has an extensive global network, consisting of the most important players from the private sector as well as on the state and international level.

“The effects of climate change are environmental issues. But the solutions are economic issues. One of the things that have struck me for many years is that climate negotiations for a long time have been dominated by people from the Ministries of Environment worldwide, while the challenge really is to create an intelligent economic agenda” Mr. de Boer says. 

He points to the fact that the international community, according to the International Energy Agency, IEA, is facing investments as massive as 20.000 billion dollars in the next 20 years. It is expected that the necessary funds will come from private and not public investors.

“If these investments are going to be made without consideration to climate change, the emissions rate of green house gases will rise considerably. That means that we have to make this investment challenge a green one.  My point is, that we should use the limited public funds available to secure that green technological solutions that are not sustainable on their own, will become exactly that” says Mr. de Boer.

The cities’ green potential
The Lord Mayor of Copenhagen, Mr. Frank Jensen and Green Growth Council Member, will be in the company of both, former US President Bill Clinton and New York City Mayor, Mr. Michael Bloomberg, when he in the end of this month will take part in the global C40-climate summit for the world’s cities in Sao Paolo, Brazil. President Clinton and Mr. Bloomberg have recently decided to consolidate their highly profiled climate initiatives and focus on making the world’s biggest cities greener.  This, according to Mr. de Boer, makes perfect sense.

“Cities are tremendously important because we live in a world with a rapid urbanization. Ten years ago a third of the Chinese population lived in cities. Now it is half. There is enormous potential in building, administrating and reforming cities in a much more effective manner. Intelligent cities can give a very significant contribution to the development of the sustainable growth agenda” says Mr. de Boer.

He emphasizes the importance of local and national level working together on the development of the cities, where buildings, transport, lighting and heating have a big significance on the climate impacts.

“Take the example of energy efficiency in buildings. The problem is that the costs linked to energy renovation often falls on the owner whilst the advantage of the energy renovation often falls on the tenant in the form of a lower energy bill. That is why it is often hard to go through with energy renovation and here you need national governments stepping in and creating legislation that makes it possible to implement the renovations”

Pensions can finance green transition
The approximately 6 billion Danish Kroner (approx. 1,19 billion USD) that the two Danish pension funds, Pension Danmark and PKA have decided to invest in a big offshore wind energy projected located close to the Danish island of Anholt is, according to Mr. de Boer, a good example of how pension funds worldwide can play an important role in the transistion to green growth. But it requires that politicians secure credible, long-term frameworks for returns and the risks linked to the green investments.

The eight biggest pension funds worldwide control investment capital for about 14000 billion dollars, according to Mr. de Boer. Many of them are interested in a sustainable future because they see it as a port of their social responsibility, for example.

“But the funds often find that investments in renewable energy gives a lower return than other investments and that they are less predictable because governments are in the habit of changing their policies on the area, every time there is a change in government. It makes it a more risky business for pension funds to venture in” says Mr. de Boer.

“That is why you, on the public side of the fence, should work on improving the investment terms for pension funds. The public sector and the private sector has to discuss together with other national and international institutions, how to address the problems with risks and returns in a more intelligent manner”

Mr. de Boer points to the example of the government in his home country, The Netherlands, where they are  right now working on creating a long term and broadly founded energy strategy, which can give the pension funds and other investors better long term

Developing countries living on an illusion
Ahead of the world’s biggest climate event, COP15 in Copenhagen in December 2009, the 56 year old Dutchman worked closely with the Danish hosts and the UN Secretary General, Ban Ki-moon, in the efforts to engage the global business community in the political climate agenda.

Among other things, this happened at the World Business Summit on Climate Change in Copenhagen in May 2009, which at that point was the biggest business orientated climate event that the world had ever seen. Amongst the speakers was Mr. de Boer.

Since then the green growth agenda has gained support from a large amount of the world’s leading businesses, while the climate skeptic part of the business world is still on the defensive. Nonetheless, there is frustration in the green part of the business world that the UN process has not been able to produce the political results, at the COP15 in Copenhagen or later on, that has been able to give the business community security in the coming years’ or decades’ framework conditions for the green growth.

Today Mr. de Boer continues to work on strengthening the business community’s involvement and influence on climate policy and the green growth agenda. At the moment he is focused on two important events: COP17 in South Africa in December this year and the global summit on sustainable growth, which is to be held in Rio de Janeiro in June 2012. With regards to the COP process Mr. de Boer is especially occupied with the enormous Green Climate Fund which was established at the COP15. The Green Climate Fund will channel over 100 billion dollars annually into climate investments.

The fund is thought to be key in the transition to a green and sustainable economy. The developing countries in particular will, according to Mr. de Boer, have to relate to the fact that the funds, to a great extent will come from private investors instead of the treasuries of the world’s richest countries.

“Today the national development aid worldwide constitutes 80 billion dollars annually. It is an illusion to think that you on top of that can secure 100 billion dollars in public contributions to the green fund” says Mr. de Boer.

How the fund is to be designed is put out for a temporary committee to decide, which consists of government representatives from a representative cross section of UN member countries. The private sector has only limited possibility to act as an observer.

“My point is that when we face such a tremendous challenge, and if this challenge primarily consists of redirecting commercial investments in a green direction, then the private sector should have a voice in the design of this green fund, in order to secure that it is mobilizing the most necessary public and private capital in the direction of these climate targets” he says.

Mr. de Boer imagines the following players and sectors to be represented in a new consulting committee in correlation to The Green Climate Fund:

• The international development banks: World Bank, The European Development Bank, The Asian Development Bank, The Inter-American Development Bank and The African Development Bank along with the member of the World Bank Group, International Finance Corporation.
• Commercial banks that are active in climate financing: Morgan Stanley, Deutsche Bank, HSBC and others.
• Sovereign wealth funds from Norway, China and the Middle East for instance as well as private equity companies and pension funds.

“It has got to be possible to create a group with that kind of actors that can counsel on how to design the green fund, so it can mobilize private capital with the maximum effect, whilst respecting the financial guidelines of the UNFCCC” says Mr. de Boer.

In this connection he foresees that Green Growth Leaders can become an important platform to counsel on how the agenda on sustainable growth can and ought to be shaped on both a national and international level, including how the private sector can be involved actively, especially with regards to how you can mix private and public funds.