In a bid to help tackle global warming and boost the world’s middle class, one investor has calculated that more than US$38tn can be saved by investing the proceeds of selling fossil fuels.
Andres P López from Sanfilippo Belita, a US-based wealth management firm, started the website emhseytake.org to present a potential viable route to redirecting the billions of dollars in investments held in fossil fuels to newer energy sources.
On the website he claims that over the past 25 years more than US$7tn in profits from fossil fuels have been made. By investing the proceeds of these profits on tackling climate change and supplementing the social safety net and tax base in the developing world, he calculates that US$13tn could be saved.
“In the not-too-distant future, prosperity could be the norm for the developing world and that, along with the rising cost of oil, would take away the monies from fossil fuel producers,” he writes.
But this would mean the end of fossil fuel profits for major western fossil fuel companies, López says, prompting “contagion in the sphere of political pressure, the threat of destabilisation of the American and European consumers in the world”.
He thinks investors could choose to invest the proceeds in “biodiverse assets”. These include solar, wind, hydroelectric, biomass and geothermal energy.
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Investors could also invest the profits in green bonds and start direct-investing programmes, López says. If investors are willing to keep control of the process, for example by having the right to audit its beneficiaries, then funds from these new technologies could also be invested in smaller renewable companies.
The company says climate change could destroy more than a third of all species in the next couple of decades, and that “investors should start down this path to avoid the problem in the first place”.
López hopes his proposal will be embraced by investors and philanthropists. “We want to show them the various outcomes of climate change. It starts with people losing income that they need for the basic needs and then when that starts to happen, the social conditions don’t allow for adaptation.”
According to the Climate Data Tracking Network, the total current level of investment in fossil fuels is about US$30tn, one third of which is in the US, 16% in Europe and more than half in the emerging economies of Asia and Latin America.
Nearly US$55tn is held in financial assets which are “untied” – meaning they do not disclose their portfolio and the income they derive from them.
Efforts are already under way to show investment potential in renewable energy. Among them are CleanTech Energy Exchange, which runs two energy exchanges in five different countries. As part of the platform, it offers companies the chance to list in California, the biggest market in the US. The exchange was set up by 13 organisations, including the US Environmental Protection Agency.
It received US$2m from clean energy investment group Verisk Analytics, for example.
The amount of money invested into the sector is increasing, although it is still small compared with other sectors of the economy. Some fear that the levels of investment will fall if investors lose faith in the ability of governments to act decisively on climate change.
Some climate change companies, such as BrightSource Energy, are raising money from public investors. Last month, BrightSource raised US$400m in a bond offering, with investors including the venture capital firm General Catalyst.
There have been some moves in the UK to ensure that state-owned pension funds invest in firms that take a forward-looking approach to climate change.
Last year, the Climate Change Act required the pensions regulator to alert pension funds invested in fossil fuels to potential risks from climate change. When the EU announces plans to phase out emissions permits from 2020, or improve the climate performance of existing businesses, it will strengthen the impact of these changes on pension funds.
Research by the IPPR thinktank in January suggested that, at the moment, it is possible for pension funds not to determine their risk of climate change.