Abstract

In this perspective, we introduce recent research into the structure and function of complex investor networks supporting sustainability efforts. Using the case of solar, wind and hydro energy technologies, this perspective explores the complexity in low-carbon finance markets, defined as markets that direct capital flows towards low-carbon technologies, using network approaches to study their structure and dynamics. Investors are modeled as nodes which form a network or higher-order network connected by edges representing projects in which joint funding or security-related insurance was provided or other investment-related interaction occurred. We review the literature on investor networks generally, particularly in the case of complex networks, and address areas where these ideas were applied in this emerging field. The complex investor dynamics which emerge from the extant funding scenarios are not well understood. These dynamics have the potential to result in interesting non-linear behaviour, growth, and decline, which can be studied, explained and controlled using the tools of network science.

Keywords:

• Complex networks
• Climate finance
• Statistical physics

Abstract

Decarbonisation plans across the globe require zero-carbon energy sources to be widely deployed by 2050 or 2060. Solar energy is the most widely available energy resource on Earth, and its economic attractiveness is improving fast in a cycle of increasing investments. Here we use data-driven conditional technology and economic forecasting modelling to establish which zero carbon power sources could become dominant worldwide. We find that, due to technological trajectories set in motion by past policy, a global irreversible solar tipping point may have passed where solar energy gradually comes to dominate global electricity markets, without any further climate policies. Uncertainties arise, however, over grid stability in a renewables-dominated power system, the availability of sufficient finance in underdeveloped economies, the capacity of supply chains and political resistance from regions that lose employment. Policies resolving these barriers may be more effective than price instruments to accelerate the transition to clean energy.

Keywords:

• Decarbonisation pathways
• Solar tipping point
• Investment barriers

Abstract

Developed country pledges to provide finance to developing countries for their mitigation actions sit at the heart of international climate cooperation. Currently, climate finance largely flows to big and fast-growing developing countries while low-income and vulnerable countries are underserved. Here, using wind and solar project data, we highlight inequities in the distribution of international investments in mitigation across developing countries and explore the factors that influence public and private investment flows. Results show that public actors are influenced by domestic climate policies since the Paris Agreement, while private finance flows are shaped by investment suitability conditions, which restricts access to both types of finance in the poorest countries. Further, public and private flows are strongly shaped by path dependency, generating an “investment lock-in” that perpetuates distributional inequities. Future international commitments to direct climate finance should address distributional issues to meet countries’ needs and the goals of the Paris Agreement.

Keywords:

• Investment suitability
• Path-dependence
• low-carbon finance

Abstract

Climate finance must be significantly increased to achieve the 1.5°C Paris temperature target. Equity demands that such finance be provided by developed to developing countries, according to their needs. Breaking investment lock-ins that exclude poor and vulnerable countries from international climate finance is necessary to ensure an equitable, timely transition.

Keywords:

• Developing countries
• inequities
• low-carbon finance

Abstract

Large-scale wind and solar photovoltaic infrastructures are rapidly expanding in Brazil. These low-carbon technologies can exacerbate land struggles rooted in historical inequities in landownership, lack of regulation and weak governance. Here we trace how green grabbing—that is, the large-scale appropriation and control of (undesignated) public lands, both formally legal and illicit, for the development of wind and solar photovoltaic power—has developed in Brazil from 2000 to 2021. We find that global investors and owners, mainly from Europe, are involved in 78% of wind and 96% of solar photovoltaic parks, occupying 2,148 km² and 102 km² of land, respectively. We also show that land privatization is the prevalent land tenure regime for securing land, indicating substantial transformations of prior (undesignated) public and common lands. We conclude that green grabbing is a persistent, critical phenomenon in Brazil, requiring transparency and vigilant monitoring of land claims and tenure modifications.

Keywords:

• Green grabbing
• Low-carbon investment
• Brazil

Abstract

Lenders are likely to face significant financial risks from the shift to a low-carbon economy, but it remains unclear whether such risks are incorporated into their lending practices. The extent of this risk depends on whether banks incorporate such risks into their lending activity and whether financial instruments’ tenors are long enough to cover the period when such risks materialize. Using a case study of shipping loans, we combine quantitative data and semi-structured interviews with key shipping debt providers. Our results show that banks, in particular signatories of the Poseidon Principles, a voluntary disclosure initiative in shipping, have started to price in the climate score of shipowners they lend to after the Paris Agreement but on a corporate rather than an asset basis. However, signatories do not differentiate their margins based on a ship’s carbon intensity, despite a relatively long loan maturity, reinforcing the limitations of disclosure initiatives to influence investment outlays.

Keywords:

• climate risks
• investors’ expectations
• shipping finance

Abstract

A timely and well-managed phase-out of bank lending to the fossil fuel sector is critical if Paris climate targets are to remain within reach. Using a systems lens to explore over $7 trillion of syndicated fossil fuel debt, we show that syndicated debt markets are resilient to uncoordinated phase-out scenarios without regulatory limits on banks’ fossil fuel lending. However, with regulation in place, a tipping point emerges as banks sequentially exit the sector and phase-out becomes efficient. The timing of this tipping point depends critically on the stringency of regulatory rules. It is reached sooner in scenarios where systemically important banks lead the phase-out and is delayed without regional coordination, particularly between US, Canadian and Japanese banks.

Keywords:

• fossil fuel finance
• banking sector
• low-carbon finance

Abstract

To encourage a step change in private finance for low-carbon investment, we examine the potential of taxing institutional investment funds (investment emissions intensity taxation, IEIT) if the emissions intensity of their portfolios exceeds specified thresholds. We examine how IEIT would impacts assets’ relative expected rates of return, using a hypothetical diversified portfolio comprising the constituents of a leading market index. IEIT exerts a price influence on the flow of corporate capital expenditures financed either by capital-raising or by corporate retained earnings, encouraging both standalone low-carbon projects and more energy-efficient replacement of process-embedded fixed assets. IEIT must be a forward-looking tax with a pre-specified profile of reducing emissions intensity threshold levels to avoid potential offshoring of investment due to its significant impact on the cost of capital for high emissions intensity companies. IEIT challenges regulated investors to match their net zero declarations with actions, and acts as a policy backstop if emissions trading prices and coverage remain too low, or in case climate risk disclosure and investment taxonomy policies alone do not shift investment behaviours sufficiently.

Keywords:

• investors taxation
• emissions intensity
• low-carbon finance

Abstract

Rapidly mobilising finance from a wide variety of sources is crucial for scaling up wind deployment and enabling the clean energy transition. To do so will require an understanding how investors co-invest in wind project finance markets and how internal market dynamics align with rapid growth in deployment. Our analysis of the largest, mature wind markets globally shows that internal market dynamics matter for the pace of growth. We observe a common pathway to fast growth whereby a small set of experienced debt providers, predominantly commercial banks, support a major fraction of all lending activity. These critical investors ascend to prominent positions in the market through a positive feedback process whereby more experienced lenders are more likely to attract new equity partners and this ‘financial learning’ spurs virtuous cycles of investment. Our results suggest strategic action to boost project finance investments entails leveraging positive feedback dynamics and supporting systemically important lenders.

Keywords:

• wind assets
• networks
• climate finance

Abstract

Clean and affordable energy is crucial to achieve a sustainable future. Despite being controversial, hydropower remains the predominant low-cost and reliable source of energy at global level, as it stabilizes the provision of electricity and it bears the power peaks without losing efficiency. However, hydropower requires huge upfront investments and patient functional capital. Under the Paris Agreement, countries committed to direct financial capital flows towards a low-emission pathway in order to enable the transition. Furthermore, private capital strongly engaged with a transition towards a climate-smart economy. The aim of this work is to study the investment system behind hydropower, investors’ behaviour and the optimal allocation of finance to favour the deployment of capital flows. We use Bloomberg Energy Finance database to track public–private investments over the past century (1903–2020). We use network models to represent the hydropower project financing landscape as a network of co-investments. We find that investors are highly localized, with continental players mostly interacting with counterparts in the same area of the world. Powerful exceptions are international organisations and multilateral banks which coinvest across the globe. They also tend to support low-income and fragile countries, meeting their mandate of sustainable development champions. Multilateral banks and international organisations are the most critical actors in enabling public–private co-investments; they activate partnerships with a wider diversity of investors within the network creating more opportunities for blended finance tools. Our results offer a novel perspective on finance for the energy transition: it challenges the idea that more capital invested is better and calls for a more efficient allocation of the available resources.

Keywords:

• hydro investment
• public–private partnerships
• climate finance

Abstract

The financial sector’s response to pressures around climate change has emphasized the role of disclosure, notably through the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures. This Perspective examines two dimensions of the expectations behind transparency and disclosure initiatives: the belief that disinvestment is driven by disclosure; and that investment ‘switches’ from high- to low-carbon assets. We warn about the risk of disappointment from inflated expectations about what transparency can really deliver and suggest some areas that research and public policy should examine to mobilize the required capital to meet climate goals.

• climate disclosure
• low-carbon investment
• climate finance

Abstract

Finance is vital for the green energy transition, but access to low cost finance is uneven as the cost of capital differs substantially between regions. This study shows how modelled decarbonisation pathways for developing economies are disproportionately impacted by different weighted average cost of capital (WACC) assumptions. For example, representing regionally-specific WACC values indicates 35% lower green electricity production in Africa for a cost-optimal 2 °C pathway than when regional considerations are ignored. Moreover, policy interventions lowering WACC values for low-carbon and high-carbon technologies by 2050 would allow Africa to reach net-zero emissions approximately 10 years earlier than when the cost of capital reduction is not considered. A climate investment trap arises for developing economies when climate-related investments remain chronically insufficient. Current finance frameworks present barriers to these finance flows and radical changes are needed so that capital is more equitably distributed.

• WACC
• low-carbon investment
• climate investment trap
• developing economies
• climate finance

Abstract

The finance sector’s response to pressures around climate change has emphasized disclosure, notably through the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The implicit assumption—that if risks are fully revealed, finance will respond rationally and in ways aligned with the public interest—is rooted in the “efficient market hypothesis” (EMH) applied to the finance sector and its perception of climate policy. For low carbon investment, particular hopes have been placed on the role of institutional investors, given the apparent matching of their assets and liabilities with the long timescales of climate change. We both explain theoretical frameworks (grounded in the “three domains”, namely satisficing, optimizing, and transforming) and use empirical evidence (from a survey of institutional investors), to show that the EMH is unsupported by either theory or evidence: it follows that transparency alone will be an inadequate response. To some extent, transparency can address behavioural biases (first domain characteristics), and improving pricing and market efficiency (second domain); however, the strategic (third domain) limitations of EMH are more serious. We argue that whilst transparency can help, on its own it is a very long way from an adequate response to the challenges of ‘aligning institutional climate finance’.

• institutional investors
• low-carbon investment
• disclosure
• efficient markets hypothesis
• climate finance

• energy efficiency gap
• market failures
• behavioural failures

• technology adoption
• energy efficiency
• consumer behavior
• discrete choice

• grid parity
• levelized cost of energy (LCOE)
• financing schemes
• solar photovoltaics

Abstract

Abstract

This paper demonstrates how achieving optimal integration between design and energy resources management can be particularly attractive in terms of energy consumption saving (cooling and heating) and lowering greenhouse gas emissions. The building automation system is based on innovative middleware framework which simplifies the modeling of a software for intelligent management of buildings and allows a multistandard and multiprotocol integration of sensors and actuators. The project has the target of underlining the economical opportunities and perspectives concerning the smart system adoption. Estimating the effects of home automation is essential to help its implementation, especially now that energy cost represents a consistent part of the house/building consumptions and will increase in the next few years. The results of the framework application in a residential building proves the validity of the proposed solution.

Keywords:

• building automation
• smart system