Finance and Equity

Finance and Equity Background Guide

Corporate Education (How to adopt more sustainable corporate policies.)
UNEP Finance Initiative is a global partnership between UNEP and the financial sector. Over 170 institutions, including banks, insurers and fund managers, and a range of partner organizations work with UNEP to understand the impacts of environmental and social considerations on financial performance. They also develop and promote linkages between the environment, sustainability and financial performance. Through regional activities, a comprehensive work programme, training programmers and research, UNEP FI carries out its mission to identify, promote, and realize the adoption of best environmental and sustainability practice at all levels of financial institution operations. Signatories are provided with practical research, capacity building, action oriented publications and, as well as hosting international conferences and events which bring together professionals from around the globe. UNEP FI provides quality support for organisations. In addition to having a dedicated team, UNEP FI opens up a vast network of sustainable development contacts, information and networking services that are dedicated to helping organizations make a difference.

EQUITY (How to Finance Sustainable Solutions.)
Grameen Bank is a microfinance and technology nonprofit organization that provides loans, savings programs and credit establishment as well as other financial services to those living in poverty. It is to envision a world where the poor has broken the poverty chain to create a world without poverty.

FINANCE (What are companies doing to achieve sustainable competition?)
Launched in 1999, the Dow Jones Sustainability Indexes are the first global indexes tracking the financial performance of the leading sustainability-driven companies worldwide. Based on the cooperation of Dow Jones Indexes, STOXX Limited and SAM they provide asset managers with reliable and objective benchmarks to manage sustainability portfolios.

Currently more than 70 DJSI licenses are held by asset managers in 16 countries to manage a variety of financial products including active and passive funds, certificates and segregated accounts. In total, these licensees presently manage over 8 billion USD based on the DJSI.

The CEO Water Mandate. (Has your country's companies recognized this mandate?)

 * Conduct a comprehensive water-use assessment to understand the extent to which the company

uses water in the direct production of goods and services.


 * Set targets for our operations related to water conservation and waste-water treatment, framed

in a corporate cleaner production and consumption strategy.


 * Seek to invest in and use new technologies to achieve these goals.


 * Raise awareness of water sustainability within corporate culture.


 * Include water sustainability considerations in business decision-making – e.g., facility-siting,

due diligence, and production processes.

The United Nations Global Compact (Have your country's companies recognized this mandate?)
What is the mandate?


 * Principle 7: Businesses should support a precautionary approach to environmental challenges;
 * Principle 8: undertake initiatives to promote greater environmental responsibility; and
 * Principle 9: encourage the development and diffusion of environmentally friendly technologies

Global Key Findings and Trends in Sustainable Development (How much has your country invested?
New investment in sustainable energy reached record levels of $148.4 billion, 60% higher than in 2006. Asset finance (to build sustainable power generation and biofuels capacity) accounted for 57% of new investment in 2007. Public market investment more than doubled in 2007 with $23.4 billion of new money raised. Convertible bond issuance increased eightfold in 2007, reflecting progressively less stable stock market conditions. Wind continued to attract the most investment, mainly for new capacity build, but solar investment took off in 2007 – $28.6 billion of new investment flowed into solar, which has grown at an average annual rate of 254% since 2004. Sustainable energy accounted for 31 gigawatts (23%) of new power generation capacity added worldwide in 2007, and 5.4% of installed generation capacity.

Wind power continues to dominate renewable energy capacity. In 2007, wind attracted more investment than nuclear or hydro, and accounted for more new energy generation capacity in Europe than any other power source. Interest in clean energy investment surged forward, with assets under management in clean energy funds rising to $35 billion in 2007 and boosting quoted sustainable energy companies’ valuations. The WilderHill New Energy Global Innovation Index (NEX) rose 57.9% in 2007. Sustainable energy companies continued to make their mark on the public equity markets, accounting for 19% of new capital raised by the energy sector in 2007. Early-stage venture capital investment surged 112% to $2 billion in 2007 by interest in emerging renewable technologies, rather than just those on the brink of commercialization, as competition for deals intensified. Private equity finance for expansion started strongly in 2007, driven largely by the boom in ethanol production in the US, but this ground to a halt in May 2007 as feedstock costs rose and ethanol prices fell.

Overall, venture capital and private equity (VC/PE) investment in biofuels fell by almost one-third in 2007, to $2.1 billion. However, biofuels investment has not dried up altogether, shifting to Brazil, India and China, as well as towards second-generation technologies. Solar attracted by far the most VC/PE investment ($3.7 billion), both for new technologies and for manufacturing capacity expansion, although biomass and waste to energy saw the fastest (432%) growth. The US continued to lead VC/PE investment, but grew only slightly year on year in dollar terms. European investment is growing strongly as investors become more willing to take early-stage risk. Research & development spending on clean energy and energy efficiency was $16.9 billion in 2007, including corporate R&D of $9.8 billion, and government R&D of $7.1 billion.

Europe and the Middle East saw the most corporate R&D activity, followed by the Americas and then Asia. Patterns of government R&D are the reverse, with Asian governments (notably Japan, China and India) investing relatively heavily in R&D. The US and UK host the most clean energy incubators, often supported by public funding. Many of the most successful incubators have benefited from government support. Solar is the single most incubated technology, with a bias towards service companies, disruptive technologies and large-scale generation such as solar thermal electricity generation (STEG). Collectively, though, energy efficiency technologies account for the greatest number of incubated companies.

Clean energy companies more than doubled the amount of money they raised of the world’s public markets in 2007, raising $27 billion. Iberenova, the wind power development arm of Spanish power giant Iberdrola, raised $7.2 billion in a landmark fl otation in December 2007, the largest Spanish IPO ever and the fourth largest public deal of the year. Since then, the US and European public markets have effectively closed. Wind dominated public market investment ($11.3 billion), although wind companies raised no money in the US in 2007. Solar companies continued to raise signifi cant amounts of capital ($9.4 billion), particularly Chinese manufacturers tapping the US markets. Public market activity from developing countries increased strongly in 2007, with investment tripling to $2.9 billion, although this is often on overseas markets such as the London or New York Stock Exchanges.

Financing of sustainable energy assets grew by 61% in 2007 to $108 billion, most of it for new generation projects. The wind sector continued to be the leading sector for new capacity, attracting $39 billion in 2007 and adding another 21GW of capacity. Global installed wind capacity exceeded 100GW in March 2008. Wind investment focused on the US, China and Spain, which together accounted for nearly 60% of new wind farms built worldwide in 2007. Solar was the fastest growing new capacity sector in 2007, increasing 250% to $17.7 billion. Solar investment was subsidy-driven, with Germany remaining the dominant market for new capacity. Total asset transactions in China and India grew significantly, to $10.8 billion in China and $2.3 billion in India, suggesting a shift away from manufacturing to generation capacity.

Corporate Mergers & Acquisition activity increased 52% to $25.7 billion in 2007, buoyed up by equity financing and diversifi cation activity. Wind led M&A activity as supply chain shortages drove consolidation amongst component manufacturers, while offshore wind projects saw increased interest. Wind assets are gradually being transferred from developers to utilities. Biofuels M&A was driven by industry turmoil, which shook out weaker players, as well as by the rising cost of building new plants, leading developers to acquire existing ones. The US and Europe dominated M&A activity, while Brazilian biofuels became a focus for non-OECD transactions.

At the end of December 2007, over $30.0 billion was under management in core clean energy funds, in addition to $26.4 billionin environmental funds and $10.9 billion in funds that invest exclusively in renewable power projects. There was a record number of new clean energy public equity fund launches in 2007: 17 compared to just fi ve in 2006. Several of these were from mainstream fund managers launching ‘climate change’ funds. The arrival of these heavyweight fund managers to the sector is likely to encourage the larger publicly listed companies they normally invest in to expand into sustainable energy and other low carbon sectors. Private (VC/PE) funds and project funds also increased their funds under management during 2007.

CDM activity is dominated by India (32% of registered projects), China (19%) and Brazil (13%). In terms of emission credits generated, however, China leads with 53%, followed by India with just 15%, refl ecting the larger average CDM project size in China. Renewable energy accounts for around 55% of CDM projects by number, but only 29% by emission credits. By the end 2007, $12.95 billion had been raised by carbon funds: $9.4 billion in private funds and $3.6 billion in public funds. Private funds grew strongly in 2007, reflecting investor interest in carbon trading, while public funds remained fl at. The UK is the leading market for private carbon investment, accounting for 65% of private carbon funds under management.

There is a continuing shift in investment from developed to developing countries, with its share of new investment growing from 13% ($1.8 billion) in 2004 to 23% ($26 billion) in 2007, a market expansion of 14 times. China, India and Brazil together accounted for most of this investment (82% in 2007).

In China asset fi nance reached a record $10.8 billion, most of it for new wind capacity, which more than doubled to 6GW. Asset fi nance in India also grew (to $2.5 billion), but the country’s most notable trend was Indian companies raising money overseas in a series of foreign currency convertible bonds, which no Indian renewable energy company had issued prior to 2007. Investment in Brazil continues to be dominated by ethanol, which drove private equity investment, asset fi nance and M&A, as investor interest shifted from the beleaguered US ethanol market to Brazil. Wind investment is picking up slowly in Brazil.Africa continues to lag other regions in terms of sustainable energy investment, however, there is promising large-scale solar development in North Africa and signs of change in South Africa, where targets for renewable energy have been set and the country’s first wind farm commissioned.

Investment in energy efficiency technology reached a record $1.8 billion, an increase of 78% on 2006. Energy effi ciency accounted for 18% of new VC/PE money flowing into the sustainable energy sector, second only to solar. Supply-side applications saw a surge in early-stage investment (more than double the 2006 figure), although demand side technologies still raised marginally more money in 2007, particularly in transport and buildings. The demand side also dominated M&A activity in the sector. Financing energy efficiency is challenging, because the benefits are asymmetrical and the industry´s diverse and fragmented nature makes it diffi cult for investors to identify large enough opportunities. In many cases some level of public intervention and support is needed to correct market failures, organize the market and catalyze investment.