Mitigating the impact of damaging greenhouse gas emissions and adapting to the impending effects of atmospheric change are widely accepted social goods. Informed people agree that reducing fossil energy use through conservation and zero-emissions strategies is desirable, that they augur well for future generations and simultaneously improve the current financial operations of enterprises, expanding economic opportunity.
Yet, investment in energy efficiency is stalled. McKinsey says that it is about one-fifth of its economically-justified potential. Financial decision makers give preference to more strategic capital projects. Investors do not consider energy efficiency returns to have either the security or the reliability of bonds. Why is this? What is wrong with the quality of efficiency investment returns? How can we change the way decisions are made? How can we make investment in more enlightened energy strategies attractive to investors?
Mandates are only marginally effective because these things cost money. Incentives are inadequate because even the most generous programs barely scratch the surface. Implementation is hampered by balance sheets that limit financial options. One important way over the hurdle is to expand those options by way of a self liquidating source of capital for mitigation and adaptation measures (efficiency, alternative energy, energy infrastructure resiliency) that is not otherwise available.
Achieving that goal, whether in institutions or municipal jurisdictions, requires a level of technical assistance and organizational development, essentially bone crushing training of officials responsible for finance, law, procurement, budgeting, project management, and operations. When successful, the work moves organizations beyond mandates, incentives, and philanthropy toward more sustainable market-based models and mechanisms. Leading jurisdictions around the world have made the transition and institutionalized the changes, most recently the City of Boston. As the case studies below demonstrate, the impact has been remarkable.
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The International Maritime Organization’s mandates to limit sulphur and carbon dioxide emissions are likely to disrupt the competitive order across dozens of industries that make up the maritime sector.
Scaling public-sector spending in infrastructure upgrades to address climate change requires new finance mechanisms, greater security, and credit enhancement to meet the needs of municipal bond investors.