January 16, 2012
Investors Vow to Address Climate Change even as Congress Fails to Act
by Robert Kropp
At the Investor Summit on Climate Risk & Energy Solutions, hosted by Ceres, institutional investors
note progress in managing climate change in their portfolios, but warn that further action must be
"It is clear that as long as Congress is effectively controlled by climate change deniers, all of
us—investors, companies, workers and the broader public—must take action ourselves," Richard
Trumka, President of the AFL-CIO, stated in a speech before this year's Investor Summit on Climate
Risk & Energy Solutions, held last week at the United Nations.
Sponsored by Ceres, the UN Foundation, and the United Nations
Office for Partnerships, the conference, which since 2003 has been held on a biennial basis, was
attended this year by some 450 institutional investors "controlling tens of trillions from four
continents," according to Ceres.
Trumka's remarks at the conference could be
interpreted to mean that meaningful action to address climate change is not happening quickly
enough to offset its effects. He said, "At least in the United States, we are not acting fast
enough. And why is that…when investors have trillions in cash parked making almost nothing and the
risks of doing nothing are mounting?"
At the heart of the problem, Trumka suggests, is the
continuing externalization of the costs of climate change. Corporations continue to pollute, while
society pays the price. And without clear government policy on climate change, investors have long
argued, they cannot risk "unparking" the trillions in cash referred to in Trumka's speech.
A report from the Brookings Institute cited at the conference stated,
"Private sector investors will deploy their capabilities and capital on low-emission investments
only to the extent that risk-adjusted returns are positive and competitive."
Notwithstanding the ongoing failure of Congress to act, the conference highlighted evidence
that institutional investors are not waiting for governments to act. As an example, attendees
pointed to a new report
from Bloomberg New Energy Finance, which found that global investment in clean energy reached a
record $260 billion in 2011. The amount exceeded the 2010 total by five percent.
during 2011, Bloomberg reported, global investment in clean energy since 2004 exceeded one trillion
dollars, and for the first time since 2008 US clean energy investment moved back ahead of China.
However, Bloomberg New Energy Finance chief executive Michael Liebreich warned, "The US
figure was achieved thanks in large part to support initiatives such as the federal loan guarantee
program and a Treasury grant program which have now expired."
"The country's principal
remaining support measure for renewable energy, the Production Tax Credit, is currently also
scheduled to fall away at the end of 2012 unless it is extended," Liebreich continued.
while the growing investment in clean energy is a positive development, the amounts are nowhere
near enough to effectively mitigate and adapt to climate change. According to the International
Energy Agency (IEA), $500 billion per year between 2010 and 2035 will be needed to keep the
increase in global average temperature below two degrees Celsius, which, according to the Intergovernmental Panel on
Climate Change (IPCC), is the point at which many effects of climate change may become
Conference attendees also pointed to a new report from Mercer—a follow-up to its groundbreaking survey of a year ago—which suggests
that many institutional investors are now factoring climate change into their investment risk
management and asset allocations.
Last year's report from Mercer warned that the economic
cost of climate policy could lead to as much as a 10% increase in portfolio risk for investors
within 20 years.
Participants in Mercer's most recent study included CalPERS and CalSTRS, two of the nation's largest pension funds. At the
conference, Jack Ehnes, CEO of CalSTRS, said, "As a matter of fiduciary duty, we must elevate our
attention and action on this huge issue. That means improving our own practices and making sure
companies we own are doing the same."
As a tool for making sure companies improve their
attention to climate change, three major investment organizations—the Investor Group on Climate Change (IGCC), the Institutional Investors Group on Climate Change (IIGCC), and the
Investor Network on Climate Risk (INCR), a
project of Ceres—published a paper entitled Institutional investors' expectations of corporate climate risk
For the most part, the paper emphasizes positions that sustainable
investors have taken for years. It recommends board oversight of climate change management,
proactive business strategies that account for climate change, disclosure of material risks and
opportunities, and public policy engagement.
The paper further recommends that investors
engage with companies on climate change and collaborate in investor initiatives, as well as support
effective climate change policy.
"It's essential—and entirely feasible – for investors to
climate-proof their portfolios," Ceres President Mindy Lubber said at the conference. "Investors
need diversified, sustainable strategies that maximize risk-adjusted returns in a volatile
Investors at the conference signed onto an Action
Plan prepared by INCR, which calls for increased private investment in low-carbon technologies
and improved scrutiny of climate risks in their portfolios.
"Some leading asset owners and
managers are addressing climate risks and opportunities in their portfolios," the Action Plan
states, "But there are still many asset owners and asset managers that are not, despite the fact
that there are pragmatic steps investors can take immediately to begin the process of identifying,
analyzing, and managing these risks and opportunities."
This year's conference took place
in the aftermath of the COP17
climate change conference, held last month in Durban, South Africa. Positive developments that came
out of COP17 included an agreement by negotiators to establish binding commitments by 2015, as well
as the mobilization by developed nations of $100 billion per year by 2020 for climate adaptation
and mitigation in developing nations through the Gre
en Climate Fund.
However, implementation of the agreements will not occur until 2020.
As Lubber stated at the investor conference, "We need leaps, not baby steps, in tackling this
colossal threat. And we need them now, not next year."
So, as with COP17, the Investor
Summit offered a mixed bag of accomplishments and warnings that more needs to be done. Will 2012
mark a turning point for rapidly increased private investment in climate change mitigation and
adaptation? Former UN climate chief Yvo de Boer seems to think it is possible. In an interview following COP17, he said, "An international agreement for global
action on climate change is within our reach and should therefore be considered within every
forward looking business strategy."
However, as Trumka of the AFL-CIO reminded investors
at the summit, "Addressing climate risk is the path to a competitive, profitable future for
investors, but the path is only open if it is a path to an economy that works for the 99% who seek
good jobs, economic security and healthy communities."