Clean tech: can sovereign wealth help?

Wed Jan 27, 2010 7:20pm EST
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By Natsuko Waki - Analysis

DAVOS, Switzerland (Reuters) - It may seem like a perfect match. If sovereign wealth funds, which manage assets of $3 trillion, invested in clean tech, they could help plug the chronic shortage of funding to tackle climate change.

Since two-thirds of their wealth comes from oil and gas interests, the funds set up by nations from Norway to the Middle East and China would be burnishing their image by helping finance clean energy projects.

The world faces an annual funding gap of around $150 billion on projects to cut carbon dioxide emissions. A failure by world leaders to agree on a deadline for a new legally binding climate pact in Copenhagen in December gave no help in boosting the momentum.

Sovereign wealth funds (SWFs) may have a key role. With around $1.5 trillion in equity investments, SWFs -- which invest nations' windfall surpluses for future generations -- already hold about 4 percent of the world's listed companies, industry estimates show.

They are expected to see their assets more than double to $7 trillion in less than 10 years.

Already some funds, particularly Norway's $400 billion reserve, are raising their profile as socially responsible investors.

But for them to fund the clean-tech future is not so simple.

So far, as for other institutional investors, the main hurdle has been poor returns. In a young market largely dominated by venture funds and lacking depth of liquidity, there's been no convincing evidence that clean tech outperforms other asset classes. There's no single benchmark to measure industry performance.   Continued...