KPMG has created a new investment concept which is a proposal designed to raise significant amounts of new capital for high-risk climate projects – net zero equity (NZE). This proposal has been further developed with the assistance of the World Economic Forum and the global insurance group Marsh. The World Economic Forum has just released a paper in advance of COP26, where the idea will be showcased.
One of the key challenges of the climate agenda is the need to mobilize capital for high-risk climate and sustainable energy projects in the developing world. Unfortunately, for most investors (including multilateral development banks and other similar investors), the overall risks with this type of investment are still too high, and therefore new solutions need to be devised to help mobilize capital into projects in this area.
To deal with this challenge, KPMG has developed a new investment concept which is called net zero equity.
Net zero equity is designed for investors who are prepared to accept highly uncertain financial returns that would in no way be commensurate with the underlying risk, but that would have a positive impact on the climate agenda and on society in general. It is modelled on the idea of creating positive climate impact rather than financial investments yielding large returns.
The hypothesis is that there is a significant number of people around the world who would be willing to act on the climate change agenda, but for whom there are no readily available means to do so. However, in a post-pandemic world where the threat of climate change now looms larger than ever, there is a new sense of purpose, awareness and global solidarity emerging around the world. The concept is to use the net zero equity idea to harness these sentiments and values in the fight against climate change.
The key point is that we believe it is possible to raise very small amounts (between US$50 and US$300) from hundreds of millions of global citizens using different mechanisms. It is proposed that global organizations will be used to champion the idea with their employees and customers, and momentum will be achieved through a series of pilot projects. An independent investment manager will be utilized to raise capital, manage investments and measure impact.
Net zero equity can help:
- Mobilize capital for clean energy and climate investment in high-risk emerging markets and on the climate agenda.
- Drive a catalytic effect, drawing in many other forms of conventional debt and equity financing.
- Engage global citizens in the climate agenda in such a way that encourages others to act.