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It’s all about money as global investors drive low-carbon transition

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If the previous decade has seen the climate change space occupied by activists, scientists, denialists and fossil fuel companies, a coordinated push from investors for derisked portfolios, is setting the stage for a very different 2018 and beyond.

As nations mark the second anniversary of the historic Paris Agreement, some 225 investors with more than USD $26.3 trillion in assets under management  have launched a plan to scale up engagement with the world’s largest corporate greenhouse gas emitters.

The  ambitious five-year initiative, known as Climate Action 100+  will drive swifter corporate action to improve governance on climate change, act to curb emissions and strengthen climate-related financial disclosures.

It was formally launched at President Macron’s One Planet Summit on Tuesday and has  grown out of the shared concern amongst long-term investors to support the Paris Agreement and to confront the concentration of carbon risk in their portfolios.

Climate change is one of the most potent threats to financial returns over the coming years.

If we are to keep global warming to well below 2-degrees Celsius and reach net zero greenhouse gas emissions by the second half of the century, global greenhouse gas emissions will need to be cut by 80 percent by 2050.

While the human impact of a warming world has very slowly gathered the attention of the those that are in a position to effect change,  the worlds biggest investors, including AustralianSuper, HSBC, CalPERS, Northern Trust, Allianz, PIMCO and AXA for example, have been quick to identify both the risk and the potentials of a decarbonised economy.

Back in 2015 Bank of England Governor Mark Carney stated that investors face “potentially huge” losses from climate change action that could make vast reserves of oil, coal and gas “literally unburnable”. Earlier this year it was announced that 77% of new coal plants planned in Europe between 2005-8 have been cancelled, with more likely to be cancelled soon.

As we come to the end of the 2017, there is now no doubt that capital is moving away from high risk, carbon intensive fuels and into renewables and low carbon solutions.

Investors signing up to the Climate Action 100+ will have the right to vote in additional companies that they deem to be of regional significance. While BHP Billiton, Rio Tinto and Wesfarmers make the top 100 list, the number of Australian companies will grow with a full list be published in January 2018. Australian companies have been put on notice.

Investors acknowledge that some companies on the  list have already demonstrated climate leadership in reference to one or more of the initiative’s goals.

Examples include setting science-based targets for greenhouse gas emissions reductions, sourcing power from 100 percent renewable energy and providing disclosure consistent with the Financial Stability Board’s Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.

But each of the companies on the initial list have been selected because of their tremendous influence on the global energy value chain. The list includes, but is not limited to, companies within the oil and gas, electric power and transportation sectors.

Climate Action 100+ is also about the massive investment opportunities emerging as the world economy decarbonizes. Bloomberg New Energy Finance estimates that zero-carbon power generation will attract almost $9 trillion in investment between now and 2040.

When asked where the best money-making opportunities would be in the years ahead Macquarie Bank employees came back with three words – renewables, infrastructure and technology.

Research commissioned by HSBC shows that 68 per cent of global investors intend to increase their low-carbon investments to accelerate the transition to a clean energy economy.

The HSBC research notes that growing investor appetite for low carbon investments is strongest in Europe (97%), the Americas (85%) and Asia (68%).  An Investor Group on Climate Change survey of Australian investors found strong appetite for low carbon investment here too.

While companies are responding, it is not happening fast enough.  Climate Action 100+ hopes to move companies further and faster down this urgent process.

Climate Action 100+ is a global solution to a global problem that investors now recognise presents a systemic risk that they can neither diversify away from nor afford to ignore.

The initiative’s 225 founding investor signatories are sending an unequivocal signal to the markets and wider society that they want to see corporate action – at both pace and scale –  to address the risks of climate change and pursue the opportunities presented by what is the greatest challenge of our time.

Emma Herd is the Chief Executive Officer of the Investor Group on Climate Change (IGCC). IGCC is a collaboration of over 64 Australian and New Zealand institutional investors with more than $2 trillion in assets under management focused on the investment implications of climate change. For more information visit
www.igcc.org.au and follow @IGCC_Update  

  • Joe

    So Europe has scrapped 77% of planned new Coalers. India and China, due to health and pollution issues, are scrapping planned new Coalers but all the time The COALition and Rupe’s newsrags bang on about hundreds of new Coalers being planned and built all around the world. Who is right?

    • PaulC

      I suspect it depends on whether you cherry-pick your data.

      Some countries have been building new coal plants because they are trying to rapidly remove nuclear (Japan, Germany). Others may simply have long development pipelines with projects just reaching completion.

      But the real test is whether any new plants get past final investment decision. Once costs are sunk, you’d expect them to carry on since sunk costs don’t affect current returns.

      But if those returns turn negative, the plants will close. That’s where we stand today… cheap coal contracts (subsidies!) may shield existing assets but future ones will prove unviable.

      • rob

        Well said Paul

  • stucrmnx120fshwf

    I was at the mad hatter’s tea party the other day, he told me, about a coal mine, where the national government, who had tripled their deficit, since coming to office, wants to pay for the railway at $1 billion, the local government wants to give the coal mine, a free airport. The National government, doesn’t tax the fuel, so the road use would be free, there was a raft of subsidies from the state government. For a jobs boom, from debt financed, capital intensive mining, using self driving extraction vehicles, managed in the Philippines by software, the market being India, where they’re planning to ban coal imports.

    Then someone said, they were going to invest in the Zinc Bromide battery factory, in Thailand, as well as, concentrated cooled solar high, low frequency solar panels and make huge amounts of money. So the Queen screamed ‘Off with his head !!!’ We can’t have the cities free of soot, smog and CO2, high rise farming, pumping oxygen, into the urban atmosphere, quiet streets, we held the party in Australia. Quite right, with the US using unconventional hydrocarbon production, to change it’s transportation energy base, China having changed to high speed railways. The world’s largest transportation energy importer and the world’s largest population country, having changed their transportation, with China making 60% of the world’s solar panels. Traditional wrong solar power increase projections, we decided to invest in the Adani coal mine, because it made good nonsense. What with all those coal fired power plants being cancelled in Europe, Asia, North America, the mad hatter said, what we need is more coal and Mr Trump, said ‘Here here.’