Statement calls for policies to unlock the vast potential of low-carbon markets and avoid economic devastation caused by climate change
The world's largest global investors have a powerful message for climate negotiators in Cancún and all national governments: Take action now in the fight against global warming or risk economic disruptions far more severe than the recent financial crisis.
The statement was signed by more than 250 investors from Europe, United States, Asia, Australia, Brazil and South Africa, with collective assets totaling over US$ 15 trillion—more than one-quarter of global capitalisation. Signatories included the global giants Allianz Global Investors and HSBC Global Asset Management, as well as many of the largest European pension funds and a dozen US public pension funds and state treasurers. It is the largest-ever group of investors to call for government action on climate change.
Citing potential GDP losses of up to 20 per cent by 2050 and the attractive economic benefits of shifting to low-carbon and resource-efficient economies now, investors released a major statement calling for national and international policies that will encourage private investment into low-carbon technologies.
A basic lesson to be learned from past experience in renewable energy is that, almost without exception, private sector investment in climate solutions has been driven by consistent and sustained government policy. Experiences from countries such as Spain, Germany and China show how structured policies can bolster investor confidence and help drive renewable energy investments. “These experiences also show how such policies can bring technologies down the cost curve and eventually strengthen their competitiveness,” said Ole Beier Sørensen, chair of the Institutional Investor Group on Climate Change and chief of Research and Strategy at the Danish pension fund ATP, with EUR 56 billion in assets.
“We cannot drag our feet on the issue of global climate change," said Barbara Krumsiek, chair of UNEP Finance Initiative and CEO of US-based investment firm Calvert Investments. "Calvert is deeply concerned about the devastating impacts of climate change - if left unaddressed - will have on the global economy. Based on the Stern Report, we know these impacts could reach global GDP cuts of an unimaginable 20 per cent per year. Why should we take that risk? The solutions are quickly emerging and we must deploy these solutions to help secure the innovation and sustainable growth our economies need."
While low-carbon global investment is increasing, especially in Asia, investors say substantially more private capital would be available for renewable energy, energy efficiency and other low-carbon technologies, if stronger policies were in place. Global clean energy investments are expected to eclipse US$ 200 billion in 2010, up slightly from 2009 but substantially less than the roughly US$ 500 billion required annually by 2020 to restrict warming to below 2 degrees.
Reflecting its weaker policies, North America lags well behind Europe and Asia in clean energy investing, supporting US$ 20.7 billion in renewable energy projects in 2009, in comparison to US$ 43.7 billion for Europe and US$ 40.8 billion for Asia, according to a recent report by the United Nations Environment Programme (UNEP). The gap has increased this year, with the US investing only US$ 4.4 billion in third-quarter 2010 while China's investments topped US$ 13.5 billion and Europe US$ 8.4 billion.
Investors had a particularly sharp message for the new US Congress.
"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," said Jack Ehnes, chief executive officer of the California State Teachers' Retirement System (CalSTRS), the nation's second largest public pension fund."The nation’s leaders should take the cue from California, where strong clean energy policies have spurred American innovation and created thousands of jobs."
Today's statement comes in advance of key negotiations in Cancún, beginning 29 November, to ratify a new international climate change treaty after the Kyoto Protocol expires in 2012. No major agreement is expected from these talks, in part because the US Congress has balked at enacting national climate legislation to reduce greenhouse gas emissions.
"Current investment levels fall well short of what is needed to stem the rise of global temperatures and adapt to a warming world,” said Mindy Lubber, president of Ceres and director of the US-based Investor Network on Climate Risk. “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.”
The statement calls for the following domestic policies in both developed and developing countries:
• Short-, mid- and long-term greenhouse gas reduction targets;
• Energy and transportation policies to vastly accelerate deployment of energy efficiency, renewable energy, green buildings, clean vehicles and clean fuels;
• Strong and sustained price signals on carbon emissions and well-designed carbon markets;
• Phase out fossil-fuel subsidies, as agreed to by G20 leaders in 2009;
• Adaptation measures to reduce unavoidable climate change impacts; and
• Corporate disclosure of material climate-related risks.
While no comprehensive agreement is expected, investors are hoping for some forward movement during the international negotiations in Cancún. Among the investors' key priorities is delivery of promised fast-start climate financing, consistent with pledges at last year's UN climate negotiations in Copenhagen. The US and other developed countries vowed at that time to channel up to US$ 100 billion a year of climate finance from multiple sources by 2020, including US$ 30 billion of "fast-start" funding from 2010 to 2012.
Donald MacDonald, trustee, BT Pension Scheme, and chair, Principles for Responsible Investment, commented: “Investors need greater policy certainty from governments. Deferring climate change agreement adds to investor concerns that climate change risks and costs are not taken seriously. The Cancún talks provide an opportunity for all concerned governments to take leadership on this important issue and start framing an agreement needed to create a sustainable investment environment.”
Other areas where investors hope to see agreements or progress in Cancún:
• The financial architecture (access, governance) of climate funding, which will facilitate a greater role for private investment;
• A rapid timeframe for implementation of efforts to reduce emissions from deforestation and forest degradation (REDD) and REDD-plus);
• Robust measurement, reporting and verification (MRV) to increase confidence in national climate policies;
• Expanding and deepening the international carbon market, including greater clarity on the future interplay of the Carbon Development Mechanism (CDM), Joint Implementation (JI) and emerging crediting mechanisms such as Nationally Appropriate Mitigation Actions (NAMAs) and REDD-plus;
• Support for the creation of well-functioning markets in developing countries for energy efficiency and renewable energy to accelerate effective large scale deployment of those technologies; and
• A clear mandate to adopt a legally binding agreement next year at COP 17 in South Africa.
16/11/2010
Asset management
