Towards a green economy Growth: 200 173 157 150 109 100 72 50 46 162 0 2004 2005 2006 Third party investment 2007 2008 2009 SDC, corp RD&D, gov R&D Figure 1: Investment in sustainable energy, 2004

2009 US$ billion Source: UNEP SEFI (2010)

would end up as the second largest year on record for VC investment in clean technology with a full year total of about US$ 7.3 billion, less than the US$ 8.5 billion raised in 2008, but well ahead of the US$ 5.7 billion raised in 2009 (Cleantech Group and Deloitte 2010). The increase in VC and PE investments in renewables will likely have a multiplier effect over time by sending signals of steady sectoral growth to other capital sources.

However, the obstacles remain considerable to scaling up investment in this sector to the levels required for a global green economy. Currently, renewables supply less than 5 per cent of the primary energy for power generation globally. The barriers to increasing this figure are financial and economic and include:

■ Higher upfront costs, capital-intensive nature of projects and the use of subsidies for conventional energy;

■ Political and regulatory; generally, policies do not favour renewable technologies;

■ Environmental and social; for example, planning objections;

■ Technical; for example, the intermittent nature of renewable technologies, and;

■ The scale of the projects, mainly higher transaction costs.

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A recent report by the World Economic Forum (WEF) and Bloomberg New Energy Finance estimated that moving to a low-carbon energy infrastructure and restricting projected global warming to below 2°C will require global investment in clean energy of approximately US$ 500 billion per year by 2020 (WEF 2010a). HSBC similarly concluded that building the low-carbon energy market would require total capital investments of US$ 10 trillion between 2010 to 2020 (HSBC 2010). However, public and private investment in clean energy in 2009 was far below needed levels. Furthermore, given the expected geographic shift of the global economy, as much as US$ 400 billion of climate change mitigation, including investment into energy, will have to flow to the developing and emerging world (World Bank 2010a).

Emergence of green property as an asset class Property investments have a considerable influence on both financial markets and carbon emissions. The outlook for green property investment is encouraging. The estimated significant growth in ESG integration levels in listed real estate and property from 26 to 58 per cent (see Table 3), the successful launching and closing of over 18 “improver” property funds from 2006 to 2010 financing the energy efficiency retrofitting of commercial buildings (Preqin 2004-2010), numerous green property development funds, and the increasing preference of occupants for green offices and residences are key indicators of green property becoming an emerging and increasingly attractive asset class.

The built environment, through its construction and use accounts for 40 per cent of both global energy use and carbon dioxide emissions. It is responsible for 30 per cent of raw materials usage and 20 per cent of water usage (UNEP SBCI 2007). Buildings have also been identified as the greatest potential source of carbon mitigation at lowest cost (IPCC 2007). Many actions that investors and occupiers of property can take to reduce overall environmental and social impacts, including improving the environmental efficiency and social utility of investable properties (UNEP FI PWG 2011b) , are low cost, estimated to be worth around US$ 12 trillion globally, (DTZ Research MiP 2009). Such actions are immediately economic – a good example of eco- efficiency (Ceres 2010).

There is growing recognition of a range of economic and financial drivers to enhance the environmental credentials of existing buildings in rental and equity markets. For example, a 2009 report (RICS 2009) found an aggregate premium in rental rates for buildings with a sustainable rating of 3 per cent per square foot, or

56% 52% 44% 10% -7%

Overcoming these barriers will require a more supportive and stable policy and regulatory framework (UNEP FI 2004).

US$ billion