According to BlackRock, by the middle of the 2030s, the global switch to green energy would cost $4 trillion annually, necessitating greater public-private collaborations, particularly in the Asia-Pacific region.
The prediction is based on BlackRock’s most recent “Investment Institute Transition Scenario,” which examines the likelihood that the low-carbon transition will occur as well as possible portfolio effects.
The $4 trillion amount is twice prior estimates of $2 trillion yearly, and more capital from the public and private sectors would be needed, according to Michael Dennis, BlackRock’s head of APAC Alternatives Strategy & Capital Markets.
Speaking last week at Singapore’s annual Ecosperity Week, Dennis stated, “APAC is really at the center of the energy investment opportunity, and we see this in multiple areas, both in developed markets and emerging markets.”
Is the money in the bank? Is the capital out there?
According to data provided by BlackRock, investments in energy-related projects have increased to $1.8 trillion last year from $33 billion in 2004 and over $19 trillion invested thus far.
“That rate of growth and the amount of capital being invested is in the right direction,” stated Dennis, who oversees BlackRock’s alternative business operations in the area, encompassing infrastructure, hedge funds, and private equity.
He said, “However, while the investment has grown, there’s still an $18 trillion gap to get to where we need to by 2030.”
There is a capital gap in a variety of risk categories, ranging from low-risk investments in essential energy infrastructure to riskier ventures like private equity and late-stage venture capital.
Dennis says there is enough money to cover this shortfall.
In a poll conducted by BlackRock among 200 institutional investors last year, it was discovered that 56% of them intended to raise their transition allocations during the next one to three years, and 46% of them stated that managing the transition is their top investment goal within that same time frame.
But according to Dennis, “alignment between government action, companies, and partnerships with communities” will be necessary to see investments through to completion in both the public and private markets.
In terms of public policy, laws such as the U.S.’s August 2022-signed Inflation Reduction Act have been successful in mobilizing billions of dollars in public funding for projects aimed at reducing greenhouse gas emissions.
Dennis stated, “Beyond that, we need to see policy change around energy pricing and deregulation of energy markets,” noting that the private sector is anticipated to provide about 60% of the necessary capital in emerging markets.
Blended financing is another important factor that drives investment, according to BlackRock, especially in emerging nations. According to the OECD, blended finance is the deliberate use of development money to raise additional funding for sustainable development.
“Blended finance is really critical, not only for the early stage of projects but for making [green] assets investable within current portfolio structures,” said Dennis, adding it can help tap trillions in funds from broader capital markets.
BlackRock claims that improving expertise across ecosystem segments and reorienting risk frameworks for green project investments are additional elements required to meet global targets for green financing.