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Mapping Channels to Mobilise Institutional Investment in Sustainable Energy

image of Mapping Channels to Mobilise Institutional Investment in Sustainable Energy

What are the channels for investment in sustainable energy infrastructure by institutional investors (e.g. pension funds, insurance companies and sovereign wealth funds) and what factors influence investment decisions? What key policy levers and risk mitigants can governments use to facilitate these types of investments? What emerging channels (such as green bonds, YieldCos and direct project investment) hold significant promise for scaling up institutional investment?

This report develops a framework that classifies investments according to different types of financing instruments and investment funds, and highlights the risk mitigants and transaction enablers that intermediaries (such as public green investment banks and other public financial institutions) can use to mobilise institutionally held capital. This framework can also be used to identify where investments are or are not flowing, and focus attention on how governments can support the development of potentially promising investment channels and consider policy interventionsthat can make institutional investment in sustainable energy infrastructure more likely.

 

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Foreword

At the core of the OECD’s work on climate finance and investment is the recognition that policy makers need to focus on and strongly influence how decisions are made to invest in long-lived infrastructure if global climate change goals are to be achieved. To meet these goals, a massive shift of investment toward low-carbon, climate-resilient infrastructure must occur. For institutional investors in OECD countries which manage a very large share of national savings, a fundamental pre-condition for investing in sustainable energy infrastructure is the presence of investment grade policies – the domestic framework of policies that provides clear price signals and predictability and policy coherence that investors need. While simple enough in principle, such a framework often proves difficult to achieve in practice, as retroactive policy changes, weak carbon pricing, fossil fuel subsidies and unintended effects of non-climate-related (e.g. financial and pension fund) regulations can undermine policies that are otherwise supportive of the low-carbon transition.

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