Rio+20 Business Focus:
Grant Thornton outlines strategy
to boost renewables sector
Written for RioPlus Business magazine June 2012
Ed Nusbaum, CEO of Grant Thornton International
Nathan Goode, head of environment, energy and
sustainability at Grant Thornton UK
The challenge of developing a low carbon
global economy has been with us for
decades. However, we have entered a new
phase on the route to decarbonisation
following the financial crisis in 2008,
further complicating the agenda for
Rio+20.
A complex relationship has
developed between the economic and
the environmental agendas, which
confusingly, seem sometimes to be in
alignment and sometimes, diametrically
opposed to one another. The low carbon
agenda is a world of stimulus, subsidy and
policy intervention, which are necessary
enablers on the road to commercialisation.
This means that while the cleantech sector
globally appears to be booming, there are
potentially some big challenges ahead.
For a time many governments were
content to provide substantial support
which low carbon industries absorbed.
However, even in the ‘good times’, the
state was only ever going to provide a
small part of the finance needed to meet
the targets set. Now intensive financial
pressures are forcing the policy-makers
to think much harder about the value that
this kind of investment delivers and to
make some difficult choices.
At the same time, securing private
capital for long term investment in the low
carbon sector is becoming more difficult.
Part of the reason lies outside the sector in
the global financial volatility that currently
reigns, but part of it lies in the sector, in
the gap between expectation and reality
as the return on capital in the low carbon
sector has so far failed to materialise. This
is potentially translating into a shortage
of capital from government and global
financial markets, just at the time when the
renewables sector needs to scale up.
One answer is for the state to become
the banker, bridging the investment gap
and looking for a return on its investment
rather than simply giving taxpayers’
money away – a role currently played by
bodies such as the European Investment
Bank, the Inter-American Development
Bank, the Nordic Investment Bank
and planned for the UK’s new Green
Investment Bank.
In macro terms, governments and
private sector investors are right to require
value for money from the low carbon
sector – we all need renewables to be
commercially viable to compete with
carbon emitting forms of generation.
The last thing we want is a series of
technologies that are subsidy junkies.
But we are seeing short term turbulence
as governments make sometimes brutal
adjustments to green stimuli and investors
sit on their hands.
Part of the problem lies in the
difficulty the market has in accurately
valuing the intellectual and other nonfinancial capitals that are embedded in
companies within new industry sectors,
such as low carbon. Until companies and
investors break out of the current short
term mind-set, high growth companies
will find it difficult to attract and retain the
commitment of investors throughout the
company’s commercial development cycle
and towards ultimate profitability.
Information plays a crucial role in
enabling efficient capital allocation – and
the information flow is particularly
important for companies that depend
on a high turnover of investors during
the different phases of technological and
commercial development. Innovative
developments in the provision of company
information are gaining momentum and
high growth sectors could benefit from
adopting Integrated Reporting, a method
that reflects the full range of factors
that link the business strategy to long
term value with the aim of building the
confidence of investors over the short,
medium and long term.
continued >
Rio+20 Business Focus: Grant Thornton outlines strategy to boost renewables sector
The International Integrated Reporting
Council (IIRC) will be publishing a
framework within the next two years and
its early work demonstrates the extent to
which measurement and assurance will
be critical factors in gaining acceptance
of Integrated Reporting globally. These
aspects of the corporate reporting dynamic
are where accountants and advisors
can offer most expertise, by ensuring
the different contributors of value are
properly measured and communicated to
stakeholders. Moreover, the provision of
a high level of assurance will be a crucial
ingredient in increasing investors’ ability
to make high quality investment decisions.
Another key ingredient is the cost to
the user – both businesses and individuals.
Again, the picture is complex. Neither
the challenges nor the opportunities
for consumers are being articulated
effectively and honestly at the moment.
Are renewables going to lead to long term
high power prices or are they in fact part
of the solution? What are the true costs
of some of the alternatives such as nuclear
power and the hidden subsidies of the
fossil fuels they are designed to replace?
Can consumers be persuaded to invest for
the future by reducing consumption or
adopting new forms of generation?
Perhaps the biggest risk is that debates
about the future of energy become
polarised and adversarial – nuclear versus
renewables; cost of energy versus the green
agenda; government intervention versus
market forces, etc – when the answers are
complex and evolving and the solutions
collaborative and multi-faceted.
There is a part for everyone to play
in smoothing the road ahead - a need
for governments to introduce stability,
simplicity and transparency into policy
frameworks; industry to pursue a relentless
focus on commercialisation; consumers
to stop taking cheap energy for granted;
NGOs to constructively engage with
global capital; and finally for investors
to step in to the water to help shape the
solutions that will free up the flow of
finance. We do not expect Rio+20 to solve
all these issues but moving this debate
forward requires them to be placed high
on the agenda.
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