The investment community is finding its voice on climate change, despite the lack of political progress to reduce carbon risk
On 23 September, world leaders met at a UN summit in New York to discuss how to tackle climate change ahead of a conference in Paris next year where many hope (though several doubt) they will secure an ambitious agreement to reduce emissions and make the transition to a low carbon global economy.
Among those calling for immediate action is a broad coalition of 348 global institutional investors who manage more than $24trn of assets.
One of their key demands is the introduction of “stable, reliable and economically meaningful” carbon pricing that will help the investment community direct money away from fossil fuels and toward low carbon investments.
The investors blame the overwhelming competition from carbon-intensive industries on the way the market is structured. Investments in clean energy amount to $250bn per year, but the International Energy Agency believes that at least $1trn is needed annually between now and 2050 to prevent global temperatures from rising by two degrees Celsius above pre-industrial levels.
“It’s not just the planet at risk, it’s savings and pensions too”
These sums of money are negligible when compared with the subsidies channelled into carbon emitting industries, says Assaad Razzouk, group chief executive of Sindicatum Sustainable Resources in Singapore and a director of the Asia Investor Group on Climate Change.
According to a report released this week by the Global Commission on the Economy and Climate, fossil fuel industry subsidies are $600bn a year, against subsidies of $90bn for clean energy. “We are fighting a battle…to compete against subsidies of a different scale,” says Razzouk.
Environmentally conscious investors see the impact of this activity as an existential threat to their assets. “Businesses see China’s ecosystem as permanently impaired through coastal erosion and land loss,” says Razzouk. “Bangladesh and the Philippines are shrinking; Bangkok and Jakarta are at risk of not existing in 30 years.”
Anne Simpson, senior portfolio manager and director of global governance at the $300bn California Public Employees’ Retirement System, says that the fund’s trustees are doing all they can to allocate their capital responsibly but that they will stay “on the sidelines if we don’t get the market with us rather than against us.”
Climate change considerations have become part of mainstream investor consciousness. Corporate BT’s £27.4bn pension scheme is a vocal supporter of the latest Global Investor Statement on Climate Change. The world’s largest asset manager, BlackRock, is also a signatory.
David Pitt-Watson, a senior strategic advisor at Inflection Point Capital Management and chair of the UN Environment Programme Finance Initiative, argues, “it’s not just the planet at risk, it’s savings and pensions too.”