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Summary report Working group session summaries 15Financing the transition toa low-carbon economyAddressing the challenge of climate change will require a radicalmobilization of – as yet – untapped sources of funding.A report prepared by the World Economic Forum andNew Energy Finance in January 2009 estimates anaverage annual investment of over US$ 500 billion isrequired from now until 2030 in renewable energyand energy efficiency technologies alone – and this inthe context of the current economic situation, wheredeveloping and developed countries alike are faced withmounting public-sector deficits and a global slowdownin capital flow. Discussions in this working group –chaired by Alan Salzman, Chief Executive Officer ofVantage Point Venture Partners – focused on three questions:1. What drives private sector investment in low-carbonsolutions?2. What are the barriers to private sector investment?3. What policies are needed to scale up investment intothe low-carbon economy?When considering the challenge of how to mobilizethe necessary flows of capital for the transition to alow-carbon economy it is important to acknowledgethe obvious: delivering an adequate and reliable returnon low-carbon investment is an essential driver forinvestors, whether pension funds, venture capitalistsor others along the investment chain. Furthermore it isnecessary to distinguish between the different recipientsof capital (entrepreneurs, established businesses)and the different sources of capital (pension funds,large corporations, venture capitalists, or governments)as each will have different motivations and appetitesfor risk.Catalyzing capital flowWhile the scale of the climate challenge is immense,there are historic examples of game-changing technologiesbreaking through, moving down the cost curve andbecoming commercially viable for mass distribution.Between them, the global policymaking community andthe private capital market players have the money, thepolicy insights, and many of the technologies neededto modify our emissions trajectory. Thus, reorientingfinance to meet the climate challenge is less a problemof capital availability than it is one of capital flow.“Right now, the risk-reward equationisn’t doing the trick. The institutionsaren’t seeing either the nearness ofthe returns based on historical precedents,or they perceive there to be toomuch risk to free the capital flows.”Alan Salzman, Chief Executive Officer,Vantage Point Venture PartnersThree key observations emerged amongst participants:• First, because of the short time-frame suggested byscience, accelerating capital flow is critical – we needto get to scale more quickly than a normal marketevolution would.• Secondly, policy frameworks need to establish bothsticks (standards, regulations, price signals) and carrots(risk rewards).• Finally, the perception that risk associated with investmentin the low-carbon economy is higher thanit actually is must be redressed.Participants recognized that agreement on a long termlow-carbon trajectory would be a critical enabler forincreased low-carbon investment. With long-termmandates in place, policy uncertainty will no longererode the returns and valuation of these investments.However, a regulatory framework needs to be designedthat will provide a solid foundation for investors, withoutpicking individual technology winners. Designingthe regulations to encourage a ‘family’ of low-carbonwinners was proposed as a possible way to shape themarket without distorting it.The discussion on Financing the transition to alow-carbon economy continues under the umbrellaof the Business-Expert Task Force on Low-Carbon Economic Prosperity, facilitated by theWorld Economic Forum´s Climate Change Initiative.To receive more detailed information, please write tocopenhagen@weforum.org.