Financing the change for the future

ZERO-konferansenGardermoen, November 19, 2012Idar Kreutzer, CEO, Finance Norway

Business as usual is not an option

Today and BAU: The world is on an unsustainable track

Vision 2050: Around nine billion people live well, and within the limits of the planet

Source: World Business Council for Sustainable Development, Vision 2050

The pathway to Vision 2050

Significant needs for investments

Expected investment needs for urban infrastructure up to 2030 (US$ billions)

Systems planning

Infrastruture

Water Technology

Buildings Finance

Many opportunities...

Source: Booz Allen Hamilton, 2007

A good match

DemandCumulative investment in green infrastructure: $40 trillion between 2012 and 2030 = approximately $2 trillion or 2% of

global GDP per year = a doubling from current levels

SupplyImportance of pension funds relative to the size of the economy, 2010 (Assets under Management % GDP)

Pension funds total: $ 28 trillion in assets

Long term investmentsSustainable investments

Source: G20/OECD Policy Note on Pension Fund Financing for Green Infrastructure and Initiatives

Barriers

•Lack of political commitment over the long term

•Lack of infrastructure project pipeline

•Fragmentation of the market among different levels of government

•Regulatory instability

•High bidding costs

Problems with government support

for infrastructure projects

•Lack of expertise in the infrastructure sector

•Problem of scale of pension funds

•Regulatory barriers

•Short-termism of investors

Lack of investor capability

•Negative perception of the value of infrastructure investments

•Lack of transparency in the infrastructure sector

•Misalignment of interests between infrastructure funds and pension funds

•Shortage of data on infrastructure projects

Problems with investment conditions

Source: G20/OECD Policy Note on Pension Fund Financing for Green Infrastructure and Initiatives

Examples

South Africa:The Government Employees Pension Fund (GEPF)

Africa’s largest pension fund ($138 bn AUM)

Largest investor on JSE

5 % invested in developmental projects, mostly infrastructure:

Economic infrastructure Social infrastructure Economic growth and

transformation Environmental sustainability

ESG framework to measure impact

Peru: In 2009, the Pension Fund

Association created an Infrastructure Investment Trust, investing only in infrastructure project debt

Managed by a company authorized by the supervisory authority, with representatives of the 4 PFAs on the investment committee

Structure believed to overcome some of the difficulties pension funds encounter in investing in infrastructure projects

Source: G20/OECD Policy Note on Pension Fund Financing for Green Infrastructure and Initiatives

The financial hub of society

The financial industry plays a key role in our lives. It paves the way for the growth and development underlying our common welfare.

The industry’s contribution: Financing the change Private Public Partnership – sustainable infrastructure Responsible investments Sharing of core competence ( i.e. understanding of risk

and losses caused by climate change) Cooperating with governments and local authorities Raising the awareness of customers

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Strong growth in sustainable AuM

2006 2007 2008 2009 2010 20110

5000

10000

15000

20000

25000

30000

35000

1. We will incorporate ESG issues into investment analysis and decision-making processes.

2. We will be active owners and incorporate ESG issues into our ownership policies and

3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.

4. We will promote acceptance and implementation of the Principles within the investment industry.

5. We will work together to enhance our effectiveness in implementing the Principles.

6. We will each report on our activities and progress towards implementing the Principles.

UN PRI The 6 principles

CSR/ESG in general corporate lending

Who’s responsibility? Role of creditor (credit) vs role of owner (equity)

Banks’ ”modus operandi” on CSR Hot topics:

Human rights – because business is fundamentally about people Climate change – because financial institutions have an

increasing need to understand and manage climate change-related risks in their portfolios

Building competence and increase understanding

«An environmental metro» to Fornebu

• Plans to build a metro from Majorstuen via Skøyen to Fornebu

• Private vendors want to build, finance and maintain the metro in a 30 year period

• Private financial institutions can finance the metro

Today’s situation

• 14.000 employees at Fornebu

• 50 busses per hour

• 6.000 residences after completion

• Large businesses: Aker Solutions, Telenor, Statoil, Kværner, OBOS, KLP Eiendom, Norwegian Property, IT-Fornebu, Aspelin-Ramm

Joint funding and public involvement

• 500 MNOK is missing

• The largest businesses will profit from a metro to FoRnebu - are they able and do they want to give something back?

• The municipality of Bærum may allow increased density and the profit can form an instructure fund

The Fornebu metro – a Norwegian test case

Active disengagement

Culture eats strategy for breakfast!

…it is about leadership and culture

Leadership for sustainability

Sustainability is the single biggest business opportunity of the 21st century

Sustainability is the single biggest business opportunity of the 21st century

The most important thing I have learned since becoming CEO is context. It’s how your company fits with the world and how you respond to it.

The most important thing I have learned since becoming CEO is context. It’s how your company fits with the world and how you respond to it.

Jeff Immelt, CEO The General Electric Company

Harold Lee Scott, Jr, former CEO Wal-Mart