Yesterday's gathering of more than 450 investors in New York saw major announcements on climate finance
If the world is to get on a development pathway that avoids the worst impacts of climate change, global climate finance needs to hit $1tr of investment each and every year for the forseeable future.
Although this sounds like a lot - especially given existing climate-related investment flows hover around the $400bn a year mark - it is not an insurmountable task.
But it is the investment community that holds the key to delivering. Institutional investors alone manage $93tr of assets around the world, and are currently underplaying their hand in the green economy, contributing only around 0.2 per cent to current climate finance flows, according to a 2017 paper by UCL researchers.
In an effort to galvanise greater action from investors, institutional and otherwise, the UN and NGO Ceres hosted a major investor summit on climate risk yesterday in New York. Some 450 investors, top company execs, and capital market leaders turned up, including some of the world's largest pension funds such as the California Public Employees' Retirement System (CalPERS) and the New York State Common Retirement Fund. In total, the audience was responsible for around $30tr of assets.
Perhaps the biggest news of the day came from the New York State pension fund, which announced plans to double its low-carbon investments, from $2bn to $4bn. The pension fund channels its low-carbon investments into a low-emission index that weights investment away from high-carbon companies such as oil giant Chevron, and towards greener firms such as Apple, which is in the process of switching to 100 per cent green energy worldwide.
It is the latest in a series of high-profile green investment moves from the pension fund, which with $200bn in assets under management is the third-largest in the US. Late last year it unveiled plans to divest from fossil fuel assets, while New York City also said it will pull $5bn in fossil fuel investments from the city's pension portfolios.
New York State comptroller Thomas DiNapoli said yesterday that the fund's low-carbon investment index was already generating a similar return to regular index holdings. "We've successfully shifted significant holdings to lower carbon companies without losing value," DiNapoli said. "Our state pension fund is at the forefront of the worldwide effort to build a lower carbon economy. Our investment decisions and our shareholder engagements are a caution to corporations: if they're not helping build a decarbonised future, they may get left behind. Our strategy for sustainable, lower carbon investing is working and will continue to expand."
In total the fund has now committed $7bn to sustainable investment strategies in stocks, property, and private equity across its portfolio.
Elsewhere during the day, seven green investment bodies - who combined work with around 1,800 institutional investors - banded together to launch a new programme, The Investor Agenda. The programme will highlight actions investors can take right now to boost their contribution to the green transition across four focus areas: investment, corporate engagement, investor disclosure, and policy advocacy.
The organisations involved, which include the Asia Investor Group on Climate Change, CDP, Ceres, the Investor Group on Climate Change, the Institutional Investor Group on Climate Change, Principles for Responsible Investment and UNEP Finance Initiative, will produce an annual report to track the progress of investors in this area, as well as support materials to help money managers adopt new strategies.
Meanwhile, the Climate Action 100+ group now has 256 members responsible for nearly $28tr in assets, organisers announced yesterday. The programme was launched in Paris at the One Planet Summit last month with 225 investors with $26.3tr in assets.
Its members have all pledged to engage with 100 of the world's most carbon-intensive firms to convince them to step up their action to curb greenhouse gas emissions, in the hope of prompting a "ripple effect" throughout the business community.
Crucially, the summit came on the same day as finance experts in Brussels published a wide-ranging set of recommendations for boosting green investment flows through the European Commission's imminent Sustainable Finance Strategy. If adopted, the EU could soon introduce new rules requiring banks to offer green finance products and requiring all listed firms to report on climate-related risks.
Global climate finance flows may still only be at a fraction of the level needed to put the world onto a pathway for two degrees of warming, but the cash needed to hit that target is itself only a small fraction of the wealth controlled by the largest investors. As growing numbers of the most powerful investors engage with climate risk issues, the $1tr target starts to edge closer.
Quotes from the day
- "This is not a peripheral exercise…. If you're not a climate-aware investor, you're fundamentally not doing your job." Brian Deese, global head of sustainable investing, BlackRock
- "We didn't leave the Stone Age because we ran out of stones. This is a future we're going to embrace and build not on the past, but on a commitment to a two degree world."
Anne Simpson, investment director of sustainability, California Public Employees' Retirement System
- "It's not hard to protect your portfolio. But we must also protect not just our grandchildren and our planet, but our species."
Jeremy Grantham, co-founder and chief investment strategist, Grantham Mayo Van Otterloo
- "The inevitable transition to a low carbon economy is creating enormous opportunity. We're a fiduciary and we're doing this not for altruistic reason, but because it's profitable."
Michael Sabia, president and chief executive officer, Caisse de dépôt et placement du Québec
- "Investors, you've got the leverage. You can get companies to take action. Take the time to say 'how are we going to bring in labour and build trust in communities?'"
Saharn Burrow, general secretary, International Trade Union Confederation
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