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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 taken now.

"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.

Also 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.

And 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 irreversible.

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 management.

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 investment environment."

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."


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