Industrial landscape

  • Mike Hayes, Leadership |

In my first Davos insight, I had written about the importance of climate consciousness and of mobilising public support to push governments to make the type of policy changes that are really required to help society implement the climate change solutions at our disposal.

For my second insight, I want to discuss the importance of sustainable energy innovation in the fight against climate change and more particularly to provide some insights into the global project KPMG is working on with the World Economic Forum to help to accelerate sustainable energy innovation.

The Paris Agreement on Climate Change in 2015 achieved a quasi-global consensus on limiting global warming to well below 2 degrees Celsius. The reality is that we are not going to achieve this with the range of technology solutions that are available to us today. I have heard many people argue that we have all the technology we need and it is just a matter of capital and policy to achieve our global objectives on climate change.

Have we ever stopped innovating? Over the centuries, in times of great need whether as a result of war, health or any other macroeconomic global crisis, innovators have always responded magnificently. In this era of climate change challenges, we are seeing real movement in the area of sustainable energy innovation with both new solutions and also the adaptation of existing solutions from other sectors such as digital.

I would go as far as to say that we are entering a golden age of sustainable energy innovation which is responding to the challenges set down by Paris and to the impending climate change catastrophe generally.To put some colour around this, I am seeing first hand with innovators in the following areas:

- Projects to commercialise the carbon capture benefits of algae on a coal plant

- Looking at the possibilities for the use of robots in asset management businesses in the world of renewables

- Potential applications around graphene and making the production of this superlative carbon capture material economical

- The Supernode Project which will through the use of new technologies, reach further out into the geographical extremes, gather renewable resources where possible appropriate and route the power back to markets through a networked grid.

- Utilisation of hydrogen technology for power storage and as an alternative fuel

Unfortunately there appears to be a number of issues which may be preventing greater acceleration of innovation, including:

- Very little financial support for early stage research and development even if it is ground-breaking

- Public support schemes tend to be somewhat bureaucratic and administratively burdensome and lack transparency

- Public and private funding is not well aligned and thus not sufficiently de-risking private investors

- Fear of equity dilution and loss of IP forces many energy innovators to do it alone and not seek funding support.

So what can be done?

Two years ago KPMG began a collaboration with the World Economic Forum on this issue, which resulted in the publication of a White Paper on the topic of Accelerating Sustainable Energy and Innovation (Whitepaper). This White Paper published six bold ideas and one of those ideas was to establish a Global Fund to support Sustainable Energy Innovation.

Following this, a combined team of specialists from KPMG member firms and the World Economic Forum have worked together to develop a proposal for the establishment of such a Fund which we now call the Global Sustainable Energy Innovation Fund (“SEIF”).

We have spent the past number of months socialising the SEIF with various stakeholders around the world including many of the key multi-lateral agencies and various other stakeholders from both the public and private investment world. In parallel we have been running a dialogue with a group of innovators all over the world to test our proposition with them as it must work for this community. We are also extensively involved with the Mission Innovation Group of 23 countries plus the EU (which was formed following the Paris Agreements).

What is special about the SEIF?

We believe it is the first Global Sustainable Energy Fund of scale to address the innovation deficit identified in the Paris Agreements focusing on both adaptive and exponential innovation.

- It will use a blended finance structure to align public and private capital for energy innovation

- The fund will invest in a diversified portfolio of innovations of different stages and focus. The portfolio approach will enable true risk mitigation for investors

- The fund will have specific focus on innovations with application to developing countries involving leading edge innovators from across the world

- It will be run by a specialist investment manager with expertise in the area of energy innovation (best in class)

- The SEIF will focus on collaboration with scientific and academic institutions and large scale industrial players to help achieve full commercialization and in effect to create sustainable energy innovation community

- It addresses the key needs of innovators unlike virtually all other support schemes

For the next number of months, we are focused on identifying an investment manager and also continuing our discussions with potential investors. If this is of interest to people who read this insight, please feel free to contact me.

We are very encouraged by the feedback we have received, not just from the investment community, but also from the innovation community. Hopefully we will see the SEIF becoming a reality in 2019 as we continue to fight the climate change challenge through new innovation.