We own fossil fuel lobby? We should own clean economy too

As Australians emerge groggily from years of scare campaigns and toxic politics around the new carbon laws, they are being grimly reminded by historic arctic ice cap melts and unprecedented extreme weather events that the need for urgent climate action has only grown.

Over the weekend a new online social media platform, The Vital Few, was launched in New York. It links retirement fund members with those that manage those funds on their behalf. This is an urgently needed new tool in climate activism. It combines profound but not yet fully realised changes in global capitalism with the potential power of millions of retirement fund members and around $60 trillion in investment capital.

While our debate has been trapped in a fishbowl of local politics, governments around the world have committed to emissions reduction targets that would stop and reverse carbon pollution. For reasons of energy security, low carbon economic opportunities and the increasingly evident impacts of climate change, many are introducing emissions trading schemes, clean energy incentives and other regulations.

These steps are significant but still insufficient to achieve the mutually agreed targets or to avoid the rising risks of climate change. As the Australian experience has so vividly demonstrated, achieving policy change in a high carbon political economy is hard and vigorously contested.

Since 2007 The Climate Institute has been asking who funds the short term focussed, high carbon economic activity that has plagued our politics and is endangering our climate and future prosperity.

The answer, increasingly, is you and I.

We have become accidental investors and participants in the investment decisions superannuation funds, insurance companies and others make with our mandatory superannuation contributions and other retirement or insurance contributions. Indeed, at a meeting with superannuation industry leaders in the days prior to the 2007 election some cheerfully admitted that “we own the fossil fuel lobby.”

Since then some of these funds have joined investor groups on climate change here and abroad that have become useful advocates in the public debate. As part of a broader trend in demand for increasing corporate transparency in the Carbon Disclosure Project, they have also urged companies to report on their pollution levels, emission reduction strategies and management of climate risks.

But as our surveys of Australian funds from 2008 to 2011 revealed, they have been very reluctant, indeed mostly unable, to reveal this information about themselves.

Globally, there is around $US60 trillion under management in funds which are managed on behalf of ordinary investors and which are also massively imbalanced in their exposure to the high carbon economy. Deutsche Bank estimates that less than 2 per cent of global capital is invested in low carbon solutions. A similar tiny percentage of Australia’s $A1.4 trillion would be invested this way.

With the Vital Few social media campaign citizen investors can exercise their legal rights in obliging funds to demonstrate how they are performing their fiduciary duty in managing big systemic risks such as climate change. A few may be all we need to help give life to more significant, sustainable, zero and low carbon investments.

This is part of a profound change in the ownership and operation of global capital that is only in its early days. Stephen Davis, from the Harvard Law School Program on Corporate Governance and Senior Fellow at the Brookings Institution has written of how increasingly engaged citizen investors, and investor funds on their behalf, are reshaping the corporate agenda most visibly in terms of executive remuneration.

But, as he noted at the launch, too many investor funds still focus their investments on the short term, sending signals to corporate boards to act irresponsibly on issues such as executive pay, climate risk and board composition.

Shifting even a small percentage of these funds in a hedging strategy can make a significant impact in tackling the climate challenge. As proper long term risk management, it requires no legislative change.

Such shifts would enhance the globally emerging policies including Australia’s carbon laws which, much more than just price carbon, represent a flexible system of carbon limits that can help Australia limit and reduce its carbon pollution impacts. They can do this by at least 5 to 25 per cent below 2000 levels by 2020 that both Labor and the Coalition support, and by the law’s target of 80 per cent by 2050. The more we delay the stronger the reduction targets business will need to face.

The Climate Institute’s pioneering work surveying superannuation funds climate disclosure has led to the founding of the Asset Owners Disclosure Project (AODP) which is managing The Vital Few. AODP also issued fresh disclosure requests to the world’s largest 1,000 asset owners in recent months and will publish its first global index of funds later this year.

Aligning the trillions of dollars in our retirement savings can help us more urgently respond to the real and rising risks of climate change. Helped by tools like The Vital Few platform it might even make the last few years turgid carbon debates worthwhile.

This article was written by John Connor, CEO of the Climate Institute. Published with permission.