Climate finance: where is the missing data?

Mark Fulton in the Finance Hub at the Guardian (UK): Money makes the world go round, as they say, but it's crucial to know exactly where it's coming from and where it's going to understand whether finance is achieving climate goals, and how.

I am talking about the flow of funds that traces which institutions (the sources) are investing in which assets (the uses). Simply put, we need to know who has the money and where they are putting it to work out why, and what drives their investment.

There are three key areas of climate and clean energy finance where a flow of funds would be particularly useful: renewable energy markets, energy efficiency finance and climate finance for the developing world. The latter of thesecould be tied to the $100bn (£75bn) United Nations Framework on Climate Change target for capital flows from developed to developing countries, and certainly will be a focus of the Green Climate Fund. In all cases, it is useful to know the global, regional and country level breakdown of the data.

...Key data is already available from organisations such as the International Energy Agency, Bloomberg New Energy Finance, UNEP FI, thinktanks IRENA and REN21, and the Climate Policy Initiative, among others. But the underlying sources of these funds are much harder to find. It would be valuable to know the sources by type of institution, particularly pension funds, insurance companies and corporations in the private sector.

The most frequently asked question is whether institutional investors are deploying much of their $70tn plus funds in environmental markets. If the private sector is to meet the challenge of investing the trillions of dollars needed to meet climate goals, it is obvious that substantial flows need to originate from private sector investors.

While there is data on sources at a project level, it is not comprehensive. It's only a snapshot at the time of financing and does not show the ultimate underlying holders of the assets. This becomes a complex calculation as capital feeds into various vehicles (holding the assets) that are then seen as the source of capital. But finding out who ultimately is responsible for funding those vehicles – the true sources – is not easy....

The diagrams above are just for illustration. The transition from normal (healthy) market behavior into abnormal seizure-like behavior at the end of 2001 (the vertical dashed line). Top is the S&P Index from March 7 2000 until March 22 2011. The third panel shows the stock correlations and the second panel shows the partial correlations (the correlations after subtraction of the Index effect. The decrease in the partial correlations manifests the abnormal dominance of the Index. This effect is further pronounced when looking at the Index Cohesive Force – the ratio between the stock correlations and the partial correlations, shown at the bottom panel.  Created by Sharronzabary, Wikimedia Commons, under the Creative Commons Attribution-Share Alike 3.0 Unported license