The world’s sovereign wealth funds, which collectively own US$8 trillion in assets but currently invest just 0.19% of this figure in green energy, have a powerful role to play in helping governments implement policies and investments to prepare for this transition.
These are the findings of a World Economic Forum white paper, Thinking Strategically: Using Resource Revenues to Invest in a Sustainable Future, published recently.
This applies to more than a dozen countries that remain heavily dependent on fossil-fuel resources.
The report goes further by saying that economies that have over 10% of their total wealth based in carbon assets could become “stranded” and must act now to develop the human capital and economic diversification to thrive in a world that is less dependent on carbon energies.
Shift to green energy
Estimates predict between two-thirds to three-fourths of energy will come from green sources by 2050.
These estimates are much higher than a decade ago, when just 15% of energy was expected to be green by 2050.
This means countries with high carbon wealth may have even less time than anticipated to avoid being stranded as the pace of the green energy shift continues to beat predictions.
By closely aligning their private investment acumen with public policy under a “strategic mandate”, these funds can deliver even more value to society.
This can be achieved by adopting a “strategic investment fund” model whereby funds act as an additional tool for policy-makers to support local development goals.
“The resource dependent, fossil-fuel-rich nations that have diligently built large sovereign wealth funds to manage the economic challenges of the Age of Oil must now consider how to use this vast wealth to prepare for the Age of Green Energy.”
In 2000, there were just 26 sovereign wealth funds in the world; 10 years later, 57 existed; and today, more than 75 sovereign wealth funds collectively hold over $8 trillion in total assets.
Only one-third of these funds operate under a strategic mandate, yet the report identifies 41 funds from commodity producers with nearly $4 trillion in assets that could do so.
Preparing for impending global energy shift
“Increasing the number ‘strategic investment funds’ is the first step to ensuring economies are prepared for the impending global energy shift,” Eltobgy said.
“While domestic investment is difficult, and political and financial risk must be diligently managed, fossil-fuel economies must use every available tool to sufficiently respond to the impending global economic shift.”
Their direct investing approach can create wealth rather than merely manage it, bringing new sources of prosperity while preparing for the challenges of tomorrow.
Read the full report here.