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November 18, 2010
Investors Call on World Leaders to Act Now on Climate Change
    by Robert Kropp

A coalition of 259 institutional investors call for an agreement at this month's climate conference that will stimulate the private investment necessary to address climate change.

On November 29, the United Nations Framework Convention on Climate Change (UNFCCC) will open its sixteenth Conference of the Parties (COP) in Cancun, Mexico. In a statement made in advance of the Conference, Christiana Figueres, Executive Secretary of UNFCCC, said, "The outcome of the conference in Copenhagen was an important milestone along the path of building effective climate change action."

"Parties are in broad convergence that a politically balanced package of decisions…could be an achievable outcome in Cancun," Figueres continued.

An influential coalition of 259 sustainable institutional investors, with assets under management of more than $15 trillion, do not strike quite the same note of optimism as Figueres in their
Global Investor Statement on Climate Change, in large part because of the inability of US legislators to address climate change in a meaningful way.

As Jack Ehnes, chief executive officer of the
California State Teachers' Retirement System (CalSTRS), stated in a webinar introducing the statement, "Climate change may be out of vogue in Washington today, but it poses serious financial risks that are not going away and will only increase the longer we delay enacting sensible policies to transition to a low-carbon economy."

The investor coalition, led by the
Investor Network on Climate Risk (INCR), the Institutional Investor Group on Climate Change (IIGCC), the Investor Group on Climate Change Australia/New Zealand (IGCC), and the United Nations Environment Program Finance Initiative (UNEP FI), noted in the statement that investments of between $500 billion and $1 trillion are necessary by 2020 to transition to a low-carbon economy and prevent global temperatures from rising more than 2 degrees Centigrade.

"However," the statement continued, "Public and private investment in clean energy in 2009 was only US$145 billion, far below needed levels."

Ehnes of CalSTRS said, "Climate change, if left unchecked, threatens economic disruptions exponentially more serious than the recent financial meltdown. If we do not act, climate change impacts could cost up to 20% of the global GDP by 2050. The cost of mitigating climate change is one to two percent of global GDP."

Ole Beier Sørensen, Chairman of the IIGCC and chief of Research and Strategy at the Danish pension fund
ATP, said in the webinar, "Trillions of dollars of private sector investments are required over the coming decades to address climate change. In fact, as much as 85% of the total investments required must come from private sources. What will it take to have private investment flow as it is needed? Investors are strongly committed to playing their part, but they will only be able to do so if supported by clear, credible, and long-term policy frameworks."

"Investors operate under fiduciary duties to their clients and their beneficiaries," Sørensen continued. "They will only be able to invest in climate-relevant assets and scale up their efforts if these offer risk-adjusted returns."

Referring to the fiduciary duty of institutional investors, the statement said, "In the absence of strong and stable policy frameworks, many low-carbon investment opportunities do not currently pass this test."

"Private investment will only flow at the scale and pace necessary if it is supported by clear, credible, and long-term policy frameworks that shift the risk-reward balance in favor of less carbon intensive investment," the statement continued.

According to the statement, investors are calling for domestic policies that "provide investors with the certainty needed to invest with confidence in receiving long-term risk-adjusted returns," international agreement on a climate change treaty, and "international finance tools that help mitigate the high levels of risk private investors face in making climate-related investments in developing countries."

On the international front, the statement calls on the Conference in Cancun to come to agreement on the private sector's role in climate funding, to expand the role of international carbon markets, and to support "the creation of well-functioning markets in developing countries for energy efficiency and renewable energy."

Citing a
2009 report from UNEP showing that "well designed finance tools can leverage between 3 and 15 times the private investment," the statement called on "policymakers to apply finance tools that lower risks and thus enable much greater amounts of private investment in climate mitigation and adaptation."

The coalition also called on the Conference to agree on a "clear mandate to adopt a legally binding agreement at COP 17 in South Africa," scheduled for November 2011.

"A global framework remains the obvious ambition," Sørensen said, "But even in the absence of a global agreement much can be achieved at regional levels and through national policies."

Effective domestic polices would include greenhouse gas (GHG) emission reduction targets, polices to accelerate a low-carbon transportation infrastructure, a price on carbon and well-designed carbon markets, an end to fossil fuel subsidies, and mandatory corporate reporting on climate-related risks.

In the webinar, Mindy Lubber, president of
Ceres and director of the INCR, said, "Strong government policies that reward clean technologies and discourage dirty technologies are essential for closing the climate investment gap and building a low-carbon global economy."

Lubber continued, "Tools and technologies to shift to a global low-carbon economy are available today, but the necessary investments to make that shift require long-term policies that encourage clean technologies. Today, our policies do the opposite."

The investor coalition concluded in its statement, "Investors can play a pivotal role in responding to climate change. It is time to put the policies and tools in place that will catalyze private investment and move the world to a low-carbon future."


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