Best Practice Report

Index

Mobilizing investment / The financing gap

2. The financing gap

The goal of public policy and finance for green growth is to support the development of sustainable commercial financial markets which continue to finance green projects after public financial support has finished. Many green options in energy, transport, agriculture, buildings, and natural resource management involve higher up-front expenditure compared with ‘business–as-usual’ options, and many do not yet present commercially viable risk/return prospects even though the full life-cycle costs may be lower for green projects compared with brown alternatives (Ryan et al., 2012).

Large-scale investments across key sectors (e.g., agriculture and forestry, energy, water, transport, etc.) are needed, which will entail both greening existing infrastructure spending as well as mobilizing additional investment. The additional investment requirements in a green growth scenario (estimated at USD 0.7 trillion per year in Figure 2) could be offset through the creation of virtuous cycles. This arises when although the initial investment in green growth is higher than BAU, it can reduce the future need for investment in non-green areas such as roads, airports, and infrastructure for production and distribution of fossil fuels because the demand is less than it would have been without green growth (Kennedy et al., 2012).
 

Figure 2:
Additional and total investment requirements in a green growth scenario