Private investment in sustainable economy set to reach $10tn by 2020

By the end of the decade, private investment in the green and sustainable economy will almost double, reaching $10 trillion (£6 trillion), according to new research. The scale of investment by 2020 will reduce the costs of green technologies and drive innovation.

The Green Transition Scoreboard (GTS) report from Ethical Markets states that since 2007, $5.3 trillion (£3.1 trillionn) has been committed to the green economy. The GTS tracks investment in the water, renewable energy, energy efficiency, green construction, green research and development (R&D) and cleantech sectors.

Hazel Henderson, GTS founder and president of Ethical Markets, said, “We are mapping the global transition from the fossil-fuelled industrial era to the more equitable, cleaner, knowledge-richer green economies to sustain our human future.”

Ethical Markets recommends that at least 10% of institutional portfolios should invest directly in companies that are driving the global transition to greener economies. Doing so allows investors to take opportunities and reduce risk, the organisation said. It added that the upward trend in investing in the green economy since 2009 suggests that more investors are taking this approach.

Investors that fail to consider the future when selecting companies to invest in could be placed at risk of having stranded assets. MPs recently warned that fossil fuel assets have the potential to be overvalued when climate regulations are taken into account.

This year’s GTS report focuses on water investment, which it argues is critical to “environmental, social and human capital, and must be integrated into financial markets rather than being overlooked as an externality”.

The growing human population and the role water plays in energy production and agriculture means that water is a crucial area in need of investment. Since 2007 water investments have added $484 billion (£290 billion) to the GTS, 9% of the overall total and more than either green R&D or cleantech.

Policy, finance, business and public debates have focused on supply, protecting water sources from pollution, curbing wasteful use and recycling the fresh water on the planet. However, the report points out that the 97% of water on Earth that is saline has been ignored, and highlights research and projects in this area as an opportunity.

Sustainable investment house Impax Asset Management has previously commented that investors should look at how to tackle future water-related challenges. Providing water solutions offers “high growth and long-term investment opportunities”, Impax said.

Of the other sectors the GTS tracks, renewable energy receives the most investment with $2.6 trillion (£1.56 trillion) being placed in the sector over the last seven years. This was followed by energy efficiency ($1.1 trillion/£0.6 trillion) and green construction ($512 billion/£307 billion).

Photo: Thomas Pate via sxc.hu

Further reading:

‘Dithering’ on green economy could cost UK billions, warns TUC

ExxonMobil remains convinced that the world needs fossil fuels – despite climate risks

Bloomberg: clean energy investment decline is ‘worrying’

World Water Day: long-term opportunities in investing in water

John Kerry: ‘we have to invest in new technology’ to fight climate change