Promoting investment in sustainability: Green Funds

Promoting investment in sustainability: Green Funds

Thousands of projects – from environmentally-friendly greenhouses and wind turbines, to organic farming and afforestation – have been implemented in the Netherlands with the support of a private investment scheme: the Green Funds Scheme.

Launched in 1995, the scheme is an innovative way of encouraging private individuals to provide capital for green projects. Individuals are incentivised through the tax system to invest in “green funds” managed by banks. The normal capital gains tax rate in the Netherlands is 1.2% of the amount invested, but when green investments are realised, the tax is waived for investments of up to €55,000. In addition, income from green funds is taxed at a reduced rate. Since May 2012, this benefit has been 0.7%, reduced from 1% in 2011 (and 1.3% in 2010). The combined benefit for investors is thus currently 1.9%. Despite cuts to the tax benefit, the tax advantages are still sufficient to attract investors, according to the Dutch government.

Banks then lend the money to green projects on favourable terms, asking for returns that are about 1% lower than the going rate. The design of the scheme and the tax benefits for individual investors mean that they are prepared to accept these lower return from green projects.

The scheme has been successful in leveraging green investment at minimal cost to the state. The Dutch Ministry of Housing, Spatial Planning and the Environment found, in a 2010 report, that in 2010 alone the scheme generated green investment of €6 billion, which “cost the country barely €150 million in tax incentives”.

The legislation governing the scheme was amended in 2010 to reflect the latest developments in environmental technology and current policy priorities. Today, projects involve a wide range of issues, such as nature conservation, sustainable aquaculture, renewable energy and sustainable buildings. The scheme has promoted public interest in issues such as organic farming – investors like to visit the farms backed by the green funds, for example. According to the 2010 report, the average investor in the scheme puts in €30,000, and is likely to be “somewhat older” with a good income.

Between 1995 and 2009, 6066 certified green projects were supported by the funds. The number of investors rose steadily, with about 250,000 involved in 2009. One example of a project was investment in technology for removing nitrogen and phosphates from wastewater at a treatment plant. The technology cuts in half the amount of sludge generated by the plant, while reducing its energy consumption by 1.5 million kWh per year.

The Dutch government has said that current less-favourable conditions for investors could mean fewer funds in the future for green investment, but that for now the Green Funds Scheme will be retained.