Listening to Professor Jeffrey Sachs, director of the Earth Institute at Columbia University, address the 600 delegates at Infrastructure Investor’s Berlin Summit this past March, one couldn’t help but feel concerned – to put it mildly – about the effects of climate change. According to Professor Sachs, even if we manage to stay within a two-degree Centigrade increase in temperature, the earth will experience conditions unprecedented in the last 120,000 years. To make matters 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 before, and on the back of, the United Nations Climate Summit held in New York on September 23rd have provided some reasons 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 failed to do so.
One group initiative launched saw 10 pension funds and other institutional investors pledging to invest in climate-resilient infrastructure, that is, assets that contribute to the mitigation of greenhouse gas emissions, reduce the vulnerability of affected communities and enhance adaptive capacity. The investors also provided 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.
“US$100 billion is a significant amount but it is absolutely feasible,” AP4 chief executive Mats Andersson said in a statement announcing the initiative which also includes the Carbon Disclosure Project and the Portfolio Decarbonisation Coalition.
“And we hope that, by reaching this target, investors can show that a different course of action is possible, where institutional investors’ goals are aligned with, and support, the common good,” he added.
The Montreal Carbon Pledge, an initiative launched by the UN-supported Principles for Responsible Investment (PRI), is a similar scheme, 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.
Ahead of the Summit, the Washington State Investment Board (WSIB) said it had put its investment partners “on notice”, requiring them to fully disclose the climate change risks faced by the companies WSIB invests in and what those companies are doing to address those risks.
Other initiatives are focusing on greater investment in clean energy. The California State Teachers’ Retirement System (CalSTRS), for example – 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.
The examples abound and are too numerous to list here. While some may be skeptical that they are no more than words, it’s hard not to view them as encouraging. Even if the initiatives do not all come to pass, there is enough momentum building that some are surely bound to generate 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 just as easily apply to any of the other efforts as well.