Word on the web: Turning green with investment

The Investor Summit on Climate Risk in New York this week has thrown up discussion about the implications that the COP21 agreement signed in Paris in December will have on global investment

This week, United Nations Secretary General Ban Ki-moon addressed financial leaders at the biannual Investor Summit on Climate Risk in New York. The summit was the first real opportunity for influential financiers to discuss the implications of the COP21 agreement signed by 196 nations in Paris in December. It requires each country to take steps to limit global warming to well below 2 degrees Celsius by 2020. 

This week’s summit has prompted commentators to revisit the terms of the agreement and discuss its implications, with some saying that it has ushered in “a new reality” for investors. 

Actual, material risksSusan Burns and Maximilian Horster, writing for Institutional Investor, describe the challenge ahead for compliant nations: “Just as countries now must figure out how to meet ambitious goals to reduce their carbon emissions, momentum is building for investors to decarbonise their portfolios.”

Up until now, they explain, portfolio decarbonisation has focused mainly on equities. Even then, they point out that: “Only a small but growing number of asset owners and managers – primarily those focused on socially responsible investing – are factoring climate change into their portfolios.”

For Burns and Horster, however, their main concern seems to be the effect the agreement could have on sovereign bonds: “Climate change poses actual material risks to national economies and, consequently, creditworthiness.”

They also stress the need for investors to understand that incorporating climate risk into their portfolios is more complicated than it may seem: “Sovereign bond investors … typically examine exposure to extreme weather events or simple carbon emission totals. 

“Research by Global Footprint Network … has shown that country risk related to climate change is far more complex.”

Institutional Investor article

Winds of changeMindy S. Lubber, President of the nonprofit sustainability group Ceres – which co-hosted the summit – and Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change, take a slightly more positive view in their blog for The Huffington Post. They say that those gathering at the summit are facing a “new world and a new reality”, and that investors should focus on speeding up and scaling up the opportunities.

The “winds of change” from Paris have meant that policy is shifting and investments in renewable energy are on the up. Indeed, much has already been achieved, they say, from the $330bn in new clean energy investments that occurred globally in 2015, to the 42 billion green bonds that were issued last year. 

The investment needed to achieve COP21 requirements
But they admit: “While these numbers may sound impressive, they are still precious little compared to the trillions of dollars that are needed from institutional investors every year to accelerate clean energy at the levels necessary to prevent dangerous climate change.”

They go on: “Investors, nationally and globally, should also be pressing for stronger company disclosure of the climate risks they are facing in order to better evaluate which companies are well positioned – or poorly positioned – to compete in the emerging low-carbon global economy.”

The Huffington Post blog 

Billions into trillionsIn his opinion piece for Ensia, Peyton Fleming, Senior Director at Ceres, focuses on the gap between current investment in the green economy and what it needs to be in order to at least achieve the goals of the COP21 agreement. “The truth is, we need far more investment in the low-carbon economy … not the few hundred billion we’re seeing now,” he says. “National climate commitments [for] COP21 alone will require some $13.5tn in investments.”

Fleming goes on to propose ways in which “pension funds, insurance companies and other investors who manage trillions of dollars [might] open their wallets to this enormous clean energy opportunity”. 

Among his suggestions are stronger alliances with progressive venture capitalists and other market participants, which might remove some of the risks associated with clean energy products in emerging economies. 

Fleming also posits that there simply aren’t enough green investment products. “Investors are constrained in their ability to invest in clean energy because there are not enough low-carbon investment products for them to invest in.”

He says that despite encouraging steps, like the $2bn low-carbon index fund announced last month by New York state and Goldman Sachs, we need more to turn the “billions into trillions for clean energy.” 

Ensia opinion

Seen a blog, news story or discussion online that you think might interest CISI members? Email joanna.lewin@wardour.co.uk
Published: 29 Jan 2016
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