At the end of last year’s Infrastructure Investor New York Summit, a seasoned industry figure said he was surprised that climate change had largely been absent as a discussion topic. Specifically, he was concerned, given the magnitude of the disaster the world is facing, that the industry wasn’t coordinating to do more to address it.
Watching Australia turn into a raging inferno over the holiday season – causing the deaths of 24 people so far, a mind-boggling half a billion animals and burning through more than five million hectares – drove the point home.
Without a step change from industry, politicians and just about everyone, the dire scenes in Australia could become commonplace around the world. That this is happening before the 1.5-degree Celsius temperature increase the 2015 Paris Agreement is trying to avoid should serve as a grim warning.
Imagine how much worse Australia’s bushfires would be in a planet that is 3.7- to 3.8-degrees warmer. That’s the scenario outgoing Bank of England governor Mark Carney said we’re headed to in a recent interview with BBC Radio 4, “if you add up the policies of all of the companies out there”.
It’s been instructive to see how private capital’s attitudes have evolved over the years towards renewables, a crucial piece of the climate-mitigation puzzle. Initially, renewables were considered a tree-hugging, ‘impact-y’ type of investment; then, as a ‘love-hate’ government-subsidised investment; and finally, as a ‘proper’ economic investment, cost-competitive with fossil-fuel energy projects and able to stand on its own two feet.
What has been lacking – not just with renewables but climate-related investments in general – is a global, mission-oriented approach to tackling climate change. Or put differently, a public-private climate moonshot.
Like any moonshot, a climate-focused one needs a concerted effort from the world’s governments. Economist Mariana Mazzucato has some – left-leaning – ideas on how governments could make that happen. But investors themselves are also calling for more ambitious public leadership.
“Much more needs to be done by governments to accelerate the low-carbon transition and to improve the resilience of our economy, society and the financial system to climate risks,” a group of 631 institutional investors managing more than $37 trillion said in a statement during December’s COP 25 climate summit, which ended in failure.
In the absence of more concerted public leadership, private capital should step up.
To a limited extent, that’s already happening. IFM Investors, for example, set “unprecedented” emissions reduction targets for its Australian assets last August, looking to cut emissions by more than 200,000 tonnes CO2 equivalent annually by 2030 (its Australian portfolio accounted for 540,702 tonnes of financed CO2 emissions in 2018). It committed to this in a country where the government, even in the face of disaster, has been loath to acknowledge and act on climate change.
The problem is in the “unprecedented” moniker used by IFM to describe its move. If we are to avoid the worst, we will need many more ‘IFMs’.
Luckily, a public-private climate moonshot is not just about avoiding destruction – it’s also about value creation.
Last July’s 50th anniversary of the first moon landing gave us a chance to look back on a classic public-private partnership. As TIME magazine recalled, “the Apollo programme alone had up to a dozen prime contractors. Those contractors portioned out the work to so many sub-contractors in so many states around the country that, in the end, an estimated 400,000 people could say they had a hand in putting Americans on the moon”.
An equivalent climate project today would dramatically overshadow those numbers.
As Carney said, there’s “now $120 trillion” of assets on banks’ and asset managers’ balance sheets looking for disclosure on fossil-fuel exposure. A significant amount of that AUM will increasingly be migrating to cleaner investments. There’s already $37 trillion ready to go. Time to speed up.
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