Government incentivising investment in clean energy projects – opportunity for Australian manufacturing

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Image: from article (below) Venture Capital in the Rise of Sustainable Investment

Labor reverses Coalition changes to CEFC mandate, adds local content and social licence

by in Renew Economy

Federal Labor has lowered the benchmark rate of return on investment for the Clean Energy Finance Corporation to levels set before Coalition government changes to the green bank, and added measures to help strengthen social licence and local content for Australian renewables projects.

According to updates to the investment mandate, the CEFC board must now target an average return of at least the 5-year Australian government bond rate, plus 2% to 3% per annum over the medium to long term as the benchmark return.

The changes undo the increases to target investment returns, ratcheted up under successive Coalition governments, which the CEFC has previously described as “unrealistically high.”

The CEFC was established by the Labor Gillard government in 2012 and allocated $10 billion to invest in Australia’s emerging clean energy sector.

After surviving an Abbott government attempt to abolish the green bank in 2013, it was subjected to funding cuts and changes to the investment mandate, including a requirement to deliver returns 3% to 4% above the 5-year Australian Government bond rate.

In 2020, CEFC chair Jillian Broadbent told then energy minister Josh Frydenberg and finance minister Mathias Cormann that the benchmark was “an unrealistically high return target” for the market, at the time.

“It does not reflect the CEFC’s considered approach to risk and the composition of the current investment portfolio,” Broadbent wrote.

This was born out by an Australian National Audit Office (ANAO) report, which found the CEFC had fallen short of reaching government-mandated investment returns every year since 2014–15.

Elsewhere, further changes to the investment mandate underline the importance of local content, requiring projects backed by the CEFC to deliver local job opportunities and use local products and services, particularly in regional Australia.

The mandate says that when investing in businesses that supply goods or services needed to develop or commercialise clean energy technologies, the CEFC must consider if they support resilient clean energy supply chains and enhance sovereign capacity to meet national climate and renewable energy targets.

“”We’re ensuring the CEFC – the world’s largest green bank and a proud Labor legacy – has a renewed focus on increasing local content and jobs in their investments,” said federal energy minister Chris Bowen.

“We’re now catching up on the big opportunities missed to supercharge Australian manufacturing of clean energy technologies like panels, batteries, turbines and parts, and maximise local jobs.”

 

Venture Capital in the Rise of Sustainable Investment

European Business Organization Law Review volume 23, pages 187–216 (2022)Cite this article

Lin, L. Venture Capital in the Rise of Sustainable Investment. Eur Bus Org Law Rev 23, 187–216 (2022). https://doi.org/10.1007/s40804-021-00238-8

Abstract

In recent years, the world has witnessed a soaring inflow of capital into sustainable investment. This is particularly so following the devastating COVID-19 pandemic. However, while a growing amount of literature has been deliberating debt financing in sustainable investment, less ink has been spilt on equity financing in this area, and even less scholarship has explored the role of government and law in supporting sustainable venture capital (‘VC’) funds. This paper proposes a dualist approach towards facilitating the development of sustainable VC funds encompassing a contractarian strategy with government support. The contractarian approach includes effective contracting covering the entire VC cycle in sustainable investment. It aims to provide strong incentives for all participants, ranging from investors, entrepreneurs and fund managers, to credit-rating agencies and evaluation firms. In the same vein, this paper seeks to craft a role for regulators that facilitates the simultaneous availability of several factors in a sustainable VC cycle (i.e., fund raising, investment and exit). In the fund-raising stage, governments can play an active role by expanding the source of financing for sustainable VC funds and enacting detailed and targeted legislation. In the VC investment stage, sustainable VC funds should make full use of their strong corporate governance rights and monitoring tasks to ensure that start-ups deliver on their sustainable promises. In the exit stage, a specialised sustainability board is strongly recommended to offer viable exit options, together with greater standardisation and comparability in sustainability information disclosure, and regulatory support for trustworthy sustainable impact rating agencies to sustain investor confidence.

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