Sovereign Wealth Funds: Form and Function in the 21st Century

As representatives of nation-states in global financial markets, sovereign wealth funds (SWFs) share a common form and many functions. Arguably their form and functions owe as much to a shared (global) moment of institutional formation as they owe their form and functions to the hegemony of Anglo-American finance over the late 20th and early 21st centuries. We distinguish between the immediate future for SWFs in the aftermath of the global financial crisis, and two possible long-term scenarios; one of which sees SWFs becoming financial goliaths dominating global markets, while the other sees SWFs morphing into nation-state development institutions that intermediate between financial markets and the long-term commitments of the nation-state sponsors. If the former scenario dominates, global financial integration will accelerate with attendant costs and benefits. If the latter scenario dominates, SWFs are likely to differentiate and evolve, returning, perhaps, to their national traditions and their respective places in a world of contested power and influence. Here, we clarify the assumptions underpinning the conception and formation of sovereign wealth funds over the past twenty years or so in the face of the ‘new’ realities of global finance.Sovereign Wealth Funds, Crisis, Market Performance, Long-term Investment

Private Sector Investment and Sustainable Development: The Current and Potential Role of Institutional Investors, Companies, Banks and Foundations in Sustainable Development

This paper seeks to provide the Financing for Development process with a perspective on the role institutional investors, companies, and foundations can play in the design and implementation of a financing strategy for global sustainability. This will help bridge the terminology and investment approaches of institutional investors, companies, foundations, and governments. The paper highlights ongoing efforts among private investors to increase the impact of their investments. It concludes with a set of key actions facing investors, companies and foundations in their transition towards investment practices that contribute to sustainable development

Decarbonizing development: three steps to a zero-carbon future

This report lays out three steps for a smooth transition to a zero-carbon future and provides data, examples and policy advice to help countries makes the shift. Overview Getting to zero net emissions and stabilizing climate change starts with planning for the long-term future and not stopping at short-term goals. It means getting prices right as part of a broad policy package that can trigger changes in both investments and behaviors, and it requires smoothing the transition for those most affected. A new World Bank report walks policymakers through those three steps with data, examples and policy advice to help put countries on a path to decarbonizing their development in a smooth and orderly way. The solutions exist, and they are affordable – if governments take action today, the report says

Challenging futures of biodiversity offsets and banking : Critical issues for robust forms of biodiversity conservation

The underlying project “Innovation in Governance” (Grant No. 01UU0906) from which this publication derives is funded by the Federal Ministry of Education and Research (BMBF), Germany.The interactive and anticipatory assessment exercise on which this report is based was part of a broader research project that focused on the innovation dynamics of governance instruments in the areas of environmental markets, public participation methods and sustainability transition management. By circulating these workshop results, we seek to contribute to a debate on biodiversity offsets and banking design with regard to constituting political reality in biodiversity conservation models.BMBF, 01UU0906, Innovation in Governanc

The Impact of Mergers on the Degree of Competition in the Banking Industry

This paper analyses the relation between competition and concentration in the banking sector. The empirical answer is given by testing a monopolistic competition model of bank branching behaviour on individual bank data at county level (départements and provinces) in France and Italy. We propose a measure of the degree of competiveness in each local market that is function also of market structure indicators. We then use the econometric model to evaluate the impact of horizontal mergers among incumbent banks on competition and discuss when, depending on the pre-merger structure of the market and geographic distribution of branches, the merger is anti-competitive. The paper has implications for competition policy as it suggests an applied tool to evaluate the potential anti-competitive impact of mergers.Banking Industry, Competition and Market Structure, Merger Policy

Alternative Paths toward a Low Carbon World

This paper analyzes the economic and investment implications of a series of climate mitigation scenarios, characterized by different levels of ambition in terms of long term stabilization goals and the transition to attain them. In particular, the implications of fairly ambitious scenarios are investigated for the first time by means of the model WITCH. Although milder climate objectives can be achieved at moderate costs, our results show that stringent stabilization paths, compatible with the target of the European Union and the G8, might have important economic repercussions. The timing of mitigation action influences the cost of meeting a target as well the stringency of the targets we can aspire to. To contain costs it is crucial to rely on a wide mitigation portfolio. Strong reductions in energy consumption through enhanced energy efficiency and life style changes are needed to achieve stringent climate policies. The analysis carried out in the present paper contains several idealistic assumptions that could be violated in the real world where some technologies may not be fully available, technology transfers and diffusion are imperfect, some world regions may not accept to reduce their GHG emissions, trading might be limited to some sectors or to a fraction of the total abatement effort, etc. This would increase the challenge of climate protection and the costs of reducing GHG emissions.Climate Policy, Stabilization Costs

The Problem of the Commons: Still Unsettled after 100 Years

The problem of the commons is more important to our lives and thus more central to economics than a century ago when Katharine Coman led off the first issue of the American Economic Review. As the U.S. and other economies have grown, the carrying-capacity of the planet - in regard to natural resources and environmental quality — has become a greater concern, particularly for common-property and open-access resources. The focus of this article is on some important, unsettled problems of the commons. Within the realm of natural resources, there are special challenges associated with renewable resources, which are frequently characterized by open access. An important example is the degradation of open-access fisheries. Critical commons problems are also associated with environmental quality. A key contribution of economics has been the development of market-based approaches to environmental protection. These instruments are key to addressing the ultimate commons problem of the twenty-first century - global climate change.Common-Property Resource, Open-Access Resource, Fisheries, Global Climate Change

On the Road to a Unified Market for Energy Efficiency: The Contribution of White Certificates Schemes

White certificates schemes mandate competing energy companies to promote energy efficiency with flexibility mechanisms, including the trading of energy savings. So far, stylized facts are lacking and outcomes are mainly country-specific. By comparing results of British, Italian and French experiences, we attempt to identify the core determinants of their performances. We show that (i) white certificates schemes are depicted in theoretical works as mandatory subsidies on energy efficiency goods recovered by an end-use energy tax, whereby white certificates exchanges are not a central feature; (ii) at current stages, existing schemes are cost-effective and economically efficient, with large discrepancies though; (iii) the hybrid subsidy-tax mechanism seems valid but conditional to cost pass through permissions; otherwise, obliged energy companies merely promote information on the “downstream” side (i.e. at the consumer level); (iv) although white certificates exchange between different types of actors involved can be important as in Italy, trade among obliged companies is negligible; instead, flexibility sustains vertical relationships between obliged parties and “upstream” partners (i.e. installers, energy service companies). In this respect, we support the view that white certificates schemes are a policy instrument of multi-functional nature (subsidisation, information, technology diffusion), whose static and dynamic efficiency depends upon the consistency between a proper definition of long-term energy savings, the appropriate cost-recovery permission and a fine coordination with other instruments. We finally propose a four stages deployment pattern, along which fragmented markets for energy efficient technologies get closer to create a unified market delivering energy efficiency as a homogeneous good.White Certificates Schemes, Static Efficiency, Dynamic Efficiency, Vertical Organisation, Policy Coordination

Beyond Copenhagen: A Realistic Climate Policy in a Fragmented World

We propose a realistic approach to climate policy based on the Copenhagen Agreement to reduce Greenhouse Gases (GHGs) emissions. We assess by how much the non-binding, although official, commitments to reduce emissions made in Copenhagen will affect the level of world GHGs emissions in 2020. Our estimates are based on official communications to the UNFCCC, on historic data and on the Business-as-Usual scenario of the WITCH model. We are not interested in estimating the gap between the expected level of emissions and what would be needed to achieve the 2°C target. Nor do we attempt to calculate the 2100 temperature level implied by the Copenhagen pledges. We believe these two exercises are subject to high uncertainty and would not improve the current state of negotiations. Rather, we take stock of the present politically achievable level of commitment and suggest an effective way to push forward the climate policy agenda. The focus is on what can be done rather than on what should be done. To this end, we estimate the potential of the financial provisions of the Copenhagen Agreement to sponsor mitigation effort in Non-Annex I countries. Using scenarios produced with the WITCH model, we show that lower commitment on domestic abatement measures can be compensated by devoting roughly 50% of the Copenhagen financial provisions in 2020 to mitigation in Non-Annex I countries. The policy implications of our results will be discussed.Kyoto Protocol, International Climate Agreements, Climate Policy, Clean Development Mechanism