A call to action (weekly)

Institutional investors are gearing up to counter climate change threats.

Listening to Professor Jeffrey Sachs, director of the Earth Institute at Columbia University, address the 600 delegates at our Berlin Summit in March, one couldn’t help but feel concerned – to put it mildly – about the effects of climate change.

According to Sachs, even if we manage to stay within a two-degree Centigrade increase in temperature, the earth will experience conditions it hasn’t seen in the last 120,000 years. To make things even more alarming, we’re well on our way to seeing a four-degree increase instead.

But over the past several weeks, initiatives that were announced ahead and on the back of the United Nations Climate Summit held in New York on September 23rd have given us reason to be optimistic. They’re also an indication that institutional investors are heeding the warnings – if not those of Professor Sachs per se, then certainly the potential risks that climate change poses to their portfolios.

Whether forming alliances, acting individually or calling on government leaders to stop subsidising fossil fuels and implementing carbon pricing, some of the world’s largest pension funds are stepping up to the plate to effect change where governments have arguably failed to do so.

One group initiative launched was that of 10 pension funds and other institutional investors pledging to invest in climate-resilient infrastructure and offer recommendations to policymakers in order to facilitate such investments. While the majority of participating pension funds were from the US and Canada – among them the California Public Employees’ Retirement System (CalPERS), the largest public pension fund in the US – European pensions took centre stage in other efforts.

The Fourth Swedish National Pension Fund (AP4) and Europe’s largest asset manager Amundi, joined forces with the United Nations Environment Programme (UNEP) and its Finance Initiative to reduce the carbon footprint of $100 billion of institutional investments worldwide by December 2015.

The Montreal Carbon Pledge, an initiative launched by the UN-supported Principles for Responsible Investment (PRI), is a similar initiative, requiring signatories to measure and disclose the carbon footprint of their investment portfolios. CalPERS was among the first to sign the pledge.

But pension plans and institutional investors are also acting on their own. The California State Teachers’ Retirement System (CalSTRS), for instance – the second-largest public pension fund in the US – said it would more than double its investment in clean energy and technology from $1.4 billion to $3.7 billion over the next five years.

Netherlands’ APG Asset Management has set a similar goal, stating it plans to double its investment in sustainable energy from €1 billion to €2 billion over the next three years.

Other examples abound and are too numerous to list here. While some may be skeptical that they are no more than just words, it’s hard to view them as anything other than encouraging. Even if all the initiatives launched do not come to pass, there is too much momentum building from multiple corners for there to be no tangible results.

As PRI managing director Fiona Reynolds put it, this is “a commitment by investors to translate climate talk into walk”. She was referring to the Montreal Carbon Pledge, but it could easily apply to any of the other efforts as well.