Copenhagen likely to slow low-carbon investment – investors

London, 7 January: The disappointing outcome of the Copenhagen talks last month is likely to discourage some investors from committing to low-carbon investments, leading investors have conceded – despite likely progress on national and regional efforts to promote alternative energy technologies.

The meeting of 193 countries to forge a post-2012 international climate change agreement almost ended in disarray, but a non-binding ‘accord’ was salvaged, which fell far short of environmental groups’ hopes.

“Copenhagen was neither a success or a failure, but another way-station on the road,” said Tom Murley, head of renewable energy at private equity firm HG Capital in London, with €3 billion ($4.3 billion) in assets under management. “I think it was over-egged, and expectations were too high.

“But will some investors who were thinking about getting into [the renewable energy] space wait a bit longer? That will probably happen,” he added.

According to a note from Citi analyst Meg Brown, “investors in renewable and energy efficiency stocks should have been expecting little from the conference as valuations depend on the detail of national policy not headline targets.” However, she noted that “sentiment on green investment may be affected.”

Ole Beier Sørensen, head of research and strategy at €52 billion Danish pension fund ATP, which last month announced a €1 billion commitment to climate change investments in emerging markets, believes that the lack of a legally binding agreement in Copenhagen could inhibit the development of potential projects.

“Maybe the deal-flow won’t develop as quickly as we would hope,” he told Environmental Finance.

ATP is calling on other investors to join with it in developing its Institutional Investor Climate Change Action Fund for Emerging Economies. However, Beier Sørensen conceded that, in general climate investment terms, “institutional investors may be holding back a little – we may not see as much as we would otherwise have seen.

“Institutional investors won’t abandon their commitments on climate change risks and opportunities altogether … but they will have trouble [addressing climate change] to the full extent of their capabilities.”

In the run up to the Copenhagen talks, investment analysts and investors cautioned that the negotiations were unlikely to lead to a comprehensive post-2012 international climate agreement – an outcome mandated by the UN talks in Bali in December 2007. Instead, a weak ‘Copenhagen Accord’ was agreed.

“Beyond a loose commitment to hold emissions below 2°C, the Accord lacked either the medium- or long-term emission reduction commitments that would mobilise additional private investment for low-carbon technologies,” analysts at HSBC concluded in a note published on 22 December.

However, analysts also pointed out that intensive negotiations around the ‘Bali roadmap’ to a new climate deal had encouraged national and regional climate policies – particularly from leading developing countries – that are set to underpin low-carbon investment.

Murley at HG Capital noted that Kyoto Protocol emission reduction targets remain to help support low-carbon investments, as does the EU’s pledge to cut emissions out to 2020. “Countries like India and China are putting laws in place,” and the US is continuing to support renewable energy growth.

And HSBC noted that the priority now is for the US to pass domestic climate legislation that would improve the prospects for an international agreement this year: “The Copenhagen Accord has marginally improved the prospects for a US cap-and-trade system. By winning agreement on transparent action from key major economies, President Obama has helped his case with a sceptical Congress concerned about competitiveness.

“Even if ‘cap and trade’ fails, we still expect federal legislation to boost renewable energy and energy efficiency,” it added.