Today is International Earth Day. With more than half the world’s population living in urban environments, what better time to focus on how we can all contribute to making our cities greener?
To help motivate us to action, the UN has released the fifth Intergovernmental Panel on Climate Council (IPCC) report, which reconfirms that the burning of fossil fuels is responsible for “severe, pervasive and irreversible” global warming. Now is the time for investors to take their money out of 19th-century engineering and put it into a green and sustainable 21st century.
Our concept of “sustainable investment” is clearly ecological, but economic sustainability plays more than a feel-good role in creating green cities – it also makes financial sense, producing stable, non-correlated, low-risk returns.
Three areas are particularly effective in terms of environmental impact and financial viability. They are:
- Sustainable energy infrastructure – ie the supply, distribution and storage of renewable energy
- Energy efficiency (by means of refurbishment of buildings, industry and public infrastructure)
- Sustainable mobility
The broad aim of these options is to shift money away from fossil fuels, such as coal, and towards renewable energies such as wind, solar and hydro electricity.
To create energy supply chains that are smooth and sustainable, we need to focus on storage. Instead of relying exclusively on constant on-peak power production, storage capacities can significantly lower the maximum production requirements. Most of the technologies to do this are in place. However, depending on the type of energy storage required, and how long it takes, different technologies must be used. For example, lithium ion batteries are only suitable for short-term storage, though it is expected that costs will go down as production plants become more effective.
Upgrading the technical equipment in buildings (lighting, air conditioning, ventilation and heating) saves more CO2 emissions than improving the facade or the windows. Also, it doesn’t take long before these investments have paid for themselves.
Putting LED bulbs in street lights saves around 70% on energy consumption, and more on maintenance due to an LED lifespan of more than six years. As a bonus for the environment, LEDs are not nearly as poisonous to dispose of as mercury vapour bulbs.
Cities on a limited budget tend not to prioritize energy efficiency. In these cases, private businesses can play a role. Companies such as the one I work for, SUSI Partners, can show city councils what is feasible, as well as what is financially attractive. Take street lights, for example: together with a technology partner a company can upgrade to LED lighting, pay for everything up front so the city has no risk and, in return, take a percentage of the energy savings over a period of years.
Similar investment strategies apply to transport. In cities such as Beijing, where pollution has a direct impact on local citizens, there’s a need for mobility solutions such as attractive walking routes, bike lanes and energy-efficient public transport. But the highest impact will come from reconsidering our reliance on cars, which make up about three quarters of the transport sector’s CO2 emissions.
Introducing electric cars would mean a total transformation of the supply and distribution of electricity. Imagine 1 million electric cars in a city, and think about the inclusion of the electrical charging infrastructure. It’s a great opportunity to redesign the grid, to reorganize the production and distribution of electricity. Now imagine 1 million electric car batteries, and the electricity storage possibilities, when they are connected to the grid. It represents an extraordinary market opportunity, especially in the big cities of India and China, where there is purchasing power and high electricity consumption.
The private sector can pre-finance these measures when city budgets can’t, or when the usual investors have different priorities. Cities often have restrictions on acquiring new debt, so private companies can step in, for mutual benefit.
Investors come from the institutional side – insurance companies, pension funds – and are looking for stable, non-correlated returns (the possibilities of which are becoming more limited due to low interest rates for sovereign bonds). Sustainable investments, renewable energies and responsible finance allow all of that, and do something good for the environment as well.
Author: Otto von Troschke is the chief investment officer and co-founder of SUSI Partners, founder of the Green Taxis Initiative and a World Economic Forum Global Shaper.
Image: A woman reads in New York. REUTERS/Lucas Jackson