Sourcing the finance to reach net-zero

Brian Haugh, Director and Head of BDO Valuation & Financial Modelling Centre featured in The Irish Times Special Report on Green Finance.

Ireland has committed to the ambitious target of net-zero emissions for 2050 and a 51 per cent reduction in emissions by 2030. However, implementing these measures is going to cost money — a figure estimated to be €20-€40 billion. How can this cost be met and can sustainable financing help?

What is ‘sustainable funding’?

Generally speaking, sustainable funding covers the provision of finance for projects that have a “sustainability” angle, for example, the reduction of energy use, waste, and water usage, says Brian. “For the most part, the focus is environmental sustainability but I am also aware of a number of ‘social bonds’ which are issued to fund social sustainability projects.”

“Governments around the world have set up funds to provide finance for these projects, for example, the EU has launched the European Green Deal Investment Plan to provide €1 trillion of funding. Private funders are also committing substantial sums, for example, the Glasgow Financial Alliance for Net Zero has committed over $100 trillion to fund sustainability projects. These funds are intended to be provided to projects that aim to help us meet our target of limiting global warming to 1.5 degrees.”

There is no single form that sustainable funding can take; it can range from non-repayable grants to seed finance for start-ups, to traditional debt finance, says Brian. “The key is that projects that are not sustainability linked cannot compete for the finance. In many cases, the cost of finance is also lower than traditional finance.”

Funding the movement

Ireland’s transition to clean energy will require substantial investment, he says, not only in renewable energy generation projects but also in improving our electricity grid and funding energy efficiency measures across the country. “These projects can benefit from the large number of financiers seeking to fund sustainable projects both in terms of access to capital and also the cost of finance.

“While there is debate as to what projects are truly sustainable, the EU taxonomy seeks to set a benchmark for sustainable funding in Europe. It provides detailed criteria which must be met in order for financial institutions to include this funding as taxonomy-aligned sustainable funding in their reporting. The taxonomy is not without controversy, however, with many criticising the late inclusion of nuclear energy and natural gas in the taxonomy as being a decision based on politics rather than sustainability.”

Content adapted from The Irish Times. 

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