The demand for green investment has never been stronger, yet some of the projects most needed from an environmental impact point of view aren’t particularly attractive to investors — policy support to make these investments more viable is required, argues a new report from Royal Bank of Canada (RBC) economists.

Despite a large and growing appetite for environmentally friendly investment, Canada isn’t generating enough support for such investment to drive emissions down to net zero by 2050.

“It could cost Canada $70 billion a year to meet its net zero commitments,” the report said. “The country’s financial sector could play a critical role in accelerating those efforts — if able to expand sustainable finance beyond current investment of $10 billion a year.”

Getting there, though, is likely going to require some policy support for the right kinds of green investment, the economists suggested in the report.

So far, the bulk of these investments — about three-quarters worth — have gone to finance renewable energy projects, whereas much-needed efforts to curb major industrial emissions aren’t as appealing to investors.

According to the report, the latter kinds of projects “are often costly, come with higher investment risk, and don’t provide significant near-term financial returns.”

Yet, without funding to cut emissions in areas such as oil and gas production, and in steel and cement manufacturing, Canada will be hard-pressed to meet its global commitments.

“One way to entice shorter-term investors would be to pull forward the returns of long-term projects like building retrofits and industrial energy-efficiency measures, for example by charging lower utility rates to entities that cut emissions,” the report suggested.

Other forms of policy support may be needed to drive investment in even tougher projects, it said.

“Direct subsidies or contracts that provide certainty on the future carbon price can help generate returns where none exist today,” the report said, noting that this could encourage companies to ensure their own capital investments are green — and as a result “reducing the need to use public dollars or incentivize risk capital.”