Macquarie sets path for COP26 and beyond

The chief executive of Macquarie Group – which is now the world’s largest infrastructure asset manager alongside its investment banking and trading operations – has outlined the five challenges she believes participants at COP26 must confront and the role she wants Macquarie to take in addressing them.

Shemara Wikramanayake’s comments, at the Macquarie Green Investment Group (GIG) Green Energy Conference, came alongside an announcement by GIG that its global development portfolio has now topped 30GW.

“The wider context has changed,” she said. “We have broad societal consensus on the need to act, the destination we need to reach, and the steps we need to get there.

“The challenge now is execution.”

Wikramanayake called for progress in five key areas. The first was the accelerated deployment of mature climate solutions: driving scale in wind, solar and electric vehicles worldwide. She said the pace of renewables development needs to accelerate from around 250 gigawatts per year today to more than 1 terawatt by 2030.

“The good news is that renewables are now the cheapest form of new generation in almost every part of the world, and investor interest far outstrips project supply,” she said. “So, the economics are on our side.”

Macquarie’s most visible new contribution to this theme is its work with the Climate Finance Leadership Initiative (CFLI) in India in partnership with the Tata Group. Wikramanayake and Tata chair Natarajan Chandrasekaran co-chair this initiative, announced in September, which seeks to mobilize private capital while also generating green assets in India through the GIG business.

India has committed to deploy 450GW of renewable energy by 2030, and its wind and solar capabilities quintupled to 76GW over the course of 2020, according to India’s ministry of finance. But Bloomberg NEF has estimated an additional $549 billion in financing will be needed across India’s power sector to reach the target; Bloomberg’s co-founder Michael Bloomberg is now the UN Special Envoy on Climate Ambition and Solutions, and chair of the CFLI.

“We believe that this powerful combination of investing institutional capital through our asset management business, and our asset creation in GIG, is the right blend of capability to rise to the challenge,” said Wikramanayake.

The second area Wikramanayake highlighted is supporting the development of emerging climate technologies.

“The transition will need much more than wind and solar,” she said. “The key focus will be electrifying whatever we can and adapting the grid to adjust, shifting to sustainable and storable fuels like hydrogen, and delivering on the promise of carbon capture.”

She called for governments to “connect ambition to detailed plans, policies and support mechanisms. With the right market environment, the private sector will invest.”

Wikramanayake said that Macquarie’s investment in these areas was “at an early stage”, but added that the group is working with partners in the UK and Australia to establish hydrogen industrial clusters. Through its asset management arm, it has invested in portfolio companies including Cadent in the UK to trial the introduction of hydrogen to the gas grid. A key investment in carbon capture and storage has been Storegga, which is leading the Acorn Project in the North Sea.

Wikramanayake also called upon the financial services sector to help on three other themes: enabling a managed transition for carbon intensive industries; redefining our relationship with the land; and adaptation.

Macquarie has an influential position in all of these. On land, for example, it has 4.7 million hectares of farmland under management, making the bank’s attitude toward nature-based solutions significant.

On Tuesday, it also brought a progress report from GIG, the division of Macquarie that incorporates the Green Investment Bank it acquired in 2017. The group’s 30GW of capacity under development is distinct from a further 20GW of green energy projects under development or in operation elsewhere at Macquarie; at a group level, Macquarie has now invested or arranged more than A$63 billion in green energy projects since 2010.

Mark Dooley, the head of GIG, addressed the group’s ambitions in emerging climate technologies. “Newer technologies require nimbleness, a bespoke response and above all a push to launch them and help them turn into mainstream technologies,” he said.

“Sometimes that support will be in the form of supporting a new company or platform, or sometimes more specific to a given asset where our involvement is required in order to make a pilot project happen. We see it as a critical part of our role.”

He added: “Hydrogen has got a role to play. Battery storage is more progressed. Carbon capture has underwhelmed a bit in the last decade, but we see it as having a strong position.”

Dooley said that offshore wind gave an example of a renewable technology becoming mainstream when properly supported, eventually winning the backing of the broader investment community.

In addition to a commitment for the whole Macquarie Group to be carbon neutral by 2050, GIG has also committed to making its own direct operations net zero by 2025.

While that might sound odd – surely all renewables are by definition carbon neutral? – Dooley said this was to do with an exacting mandate.

“We do not get to take credit for the emissions avoided by renewable projects,” he said. “Instead, we have got to make the effort of monitoring the carbon footprint they do have: the materials required; the emissions involved in putting these projects together.”

In the course of 2020, GIG committed or arranged £752 million into projects reaching final investment decision or in operation, and provided more than £200 million of development and operational funding to its pipeline, the group announced.

During the conference, Wikramanayake interviewed Alok Sharma, president for COP26 and minister of state at the Cabinet Office in the UK.

He addressed the financing needs around climate change that will be discussed at COP26, including the intention for $100 billion a year to be raised by developed countries for developing countries to support them in their own transition.

“This has become a real totemic figure, and when you speak to developing countries, they do see this as a matter of trust,” said Sharma.

He added that he was working with colleagues in the Canadian and German governments to put together a delivery plan, which he hopes will be published before COP26, “showing the pathway to $100 billion a year. We are seeing what can be done in terms of mobilizing private finance.

“There is going to be a requirement for trillions of dollars to go into climate-resilient infrastructure in developing countries, and this is where there is a real role for the public and private sector to play a part.”

Sharma used the example of the contract-for-difference auction the UK used to build out its offshore wind sector, creating one of the biggest such sectors in the world – one which he says the UK wants to quadruple in size. Sharma said developing revenue mechanisms of that kind would be an essential part of support to developing countries.

He also called upon multilaterals to continue to offer first-loss solutions to coax private capital into projects they might otherwise consider too risky.

“If you’re in a developing country now and you hear these big numbers, I think sometimes they will wryly smile and say: well, it’s great to hear that you guys want to deploy this, but we’re not necessarily seeing it on the ground,” said Sharma.

“The vital role we have to play now is to ensure that this money does actually connect with the projects in developing countries.”

Asked by Wikramanayake what headline he would like to see emerge from COP26, he said: “World unites to keep 1.5 live.”