Turning up the dial on the energy efficiency agenda will reap rewards
Despite a pressing need to cut energy use to meet EU targets, investment in this crucial area hasn't taken off in the same way as, for example, funding for renewable energy.
Policy often overlooks the fact that energy efficiency investment is the most cost effective and rational way of reducing emissions.
This has been at the forefront of my thinking recently as I took part in the first-ever ‘Buildings Day’ at COP21 – a great catalyst for closer collaboration on increasing energy efficiency; a platform for aligning existing initiatives with the aim of achieving greater scale and a faster pace of action. After all, nearly half of emissions in Europe emanate from the built environment.
The Paris sessions further strengthened a growing sense of partnership, which was boosted earlier this year by a report from the Energy Efficiency Financial Institutions Group (EEFIG), exploring how to drive new finance for energy efficiency investments.
One issue to address is the lack of a single, coherent solution. It’s the nature of the beast – while efficiency is applicable to all, it’s a subject that is difficult to classify within the organisational structure of a bank in terms of making sense of future business opportunities.
The range of energy efficiency’s impacts means that it cuts across traditional sector lending and product groups, affecting areas ranging from buildings, infrastructure and energy to public health – but without really being the responsibility of any of them. And because the benefits are so widely dispersed, it can be difficult to build a single, cohesive business case.
This brings me back to the concept of collaboration. The introduction of the EU’s Energy Efficiency Directive in 2012, and the launch of its Energy Union Framework Strategy this year , presents significant opportunities – and collaboration is the key to unlock this potential.
To mobilise significant investment at scale, there needs to be close co-operation between private sector banks, the development banks and policymakers. Encouragingly, the market and policy makers are now beginning to work in tandem and have the right conversations.
It’s an approach that was very successful in financing the reconstruction of central and eastern European countries after the collapse of the Soviet Union, so there is certainly a precedent for it.
One factor that has previously held back energy investment is a lack of confidence that these investments will pay a return. We need instruments to tackle this. One such initiative is a European version of a project by the Environment Defense Fund in the US, called the Investor Confidence Project, which is working to build a market of “investor-ready projects.” A tipping point is on the horizon.
This ties in well with ING’s new approach to sustainable lending – we are in the business of contributing to the transition to a low-carbon future through sustainable transactions. And energy efficiency is one of the best ways of doing that. It’s also good business. If you are helping your customers to save money, it helps you to build a relationship.
Over the next few years, energy efficiency will rise ever higher up the corporate investment agenda and become more of a mainstream financing activity. Investing in energy efficiency has a fundamental and beneficial role to play as we move towards a more competitive, secure and sustainable energy system. The collaboration evident in Paris suggests we are on the right track.
Stephen Hibbert is global head of energy & carbon efficiency finance at ING.