This green finance approach makes your initiatives more successful

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

When you are putting together a green finance strategy, what are the key pieces of the puzzle?

When we compare the climate change and energy efficiency strategies that public and private bodies have created to date, we’re seeing lots of them calling for new incentives to pay for climate change and energy saving initiatives (answering the “how much”, “what” and “why” strategy questions), but almost none of them answering the “which”, “when” and “how” questions on the financial support they call for. By the latter phrase, we mean ‘which kinds financial mechanisms and products’ work best with ‘which technology and energy savings initiatives’ at ‘what point in time of the carbon reduction time frame’?

Those are very tough questions, we know. However, the failure to embed those particular answers about financing any strategy leads to the tragic irony that we now see in many jurisdictions: experts say energy efficiency offers huge business potential, billions of dollars and euros in incentives are authorized, with billions more in the pipeline, but everybody’s still scratching their heads about how to access the funds and put them to good use. Without clearly acknowledging and differentiating finance’s varied impacts across a sustainable strategy’s time line, lots of good plans are assured ineffectiveness by fragmented, uncoordinated financial support.

It’s almost as if sustainability might be starving in a grocery store full of food.

Now here’s an interesting model we have come across that, in our humble opinion, does a neat  job framing the coordination of financing mechanisms so that sustainable finance can better deliver what’s intended: provide the right kinds of funding for the right types of initiatives and technologies at the right points in time over the life of the carbon emissions reduction strategy. We see the individual points of this framework in many strategies, but this model elegantly organizes those disparate pieces into a coordinated approach to sustainable finance.

A Green Finance Approach from the European Commission

From our work in the European Union, we’ve seen the European Commission’s recent announcement of their plans to invest EUR 50 billion (USD 73.5 billion) into low carbon technologies over the next 10 years. This really caught our attention because the Commission’s strategies are among the few which include a detailed framework, called an ‘impact assessment’ for deciding on the right combination of financing structures to pay for identified groups of technologies and mechanisms needed to achieve greenhouse gas emissions reductions targets.

So if you wanted to apply a similar process to assessing finance within your own green investment and/or energy efficiency platform, how would you do it?

1) Lay out your most likely individual finance options. Financial policy options were first derived independently of the underlying technical applications. Starting with the ‘business as usual investments and institutional arrangements’ and proceeding along a continuum to ‘the creation of new investment vehicles along with specific institutional arrangements’, they were each evaluated for individual strengths and weaknesses.

2) Group your initiative/technology investments around key characteristics. In the case of the European Commission, strategic planning involves technologies/initiatives that were grouped into different timing buckets based upon how close they were to market competitiveness. You can do this for all kinds of initiatives, too. We can imagine that investors in green and/or energy efficient real estate might not think in terms of the technology groupings. However, if you see your sustainable real estate portfolio as being geographic and technical groupings of properties, leases, regulations and technologies over time, then you will have taken the crucial first step to removing the confusion of fragmented incentives and other ineffectual financing moves.

3) Clearly define assessment criteria for each finance option to be adopted. In the case of the European Commission, the finance policies considered were evaluated in terms of mobilization, suitability, flexibility and effectiveness. By the way, we think these particular criteria could be useful in a broad array of cases.

We’ll let you read the document to learn about the particular finance policies that the European Commission came up with, since we’re more focused here on their framework’s broader application.

The results of their approach highlights the need to maximize sustainable value creation through better, up front coordination and structuring of finance policies and initiatives.  One way that their recommendations are better as a result of this framework is that they are able to distinguish up front between instances where simply more funding was needed, such as for energy efficiency, and those areas where different types of funding and/or institutional arrangements would be more appropriate.

We hope this discussion gives you a good starting point for structuring and coordinating your own green finance and investment options, so that your own portfolio and programs are more successful.

Send us any stories you have to share on that front, since this is a topic that we are very passionate about.

*     *     *

Things you might want to know:

• Do you like this post? We’d love to hear your comments and suggestions.
• You can contact us to discuss or initiate a project here.
• You can get Our Green Journey by email or via RSS.
• Sometimes you can see what we’re doing on Twitter.
• Photo credit: chromatika on istockphoto

Dan Geiger Recommends: USGBC’s Green Building Policy Database

Ah,  the wisdom of crowds!

If you follow the author who made this phrase famous, then you know that having a large group of people solving a problem is better than an elite few (his words).

And that thinking has definitely propelled lots of solutions in  the green building sector.

So, with that, let me thank Green Journey reader Dan Geiger, Executive Director of the USGBC Chapter here in Northern California for contributing a helpful reminder for all those who, like my friend in the previous post are in the process of drafting green building policies.

Dan reminded me that the USGBC maintains a searchable database of public policies — including green building ordinances. Check it out. It’s awsome.

Not quite the download template, copy, paste action that my friend was hoping for, but it would definitely advance your municipality’s climate change mission way beyond what you could accomplish just doing it yourself from scratch.