A number of investors are positioning themselves to make big investments in the coming years to tackle climate change risks and help nations and local governments slash greenhouse gas emissions in line with the goals of the Paris Agreement on climate change.
Participants at a Jan. 31 Investor Summit on Climate Risk in New York City said they see room for investment in low-carbon indices and in infrastructure for the energy, water and real-estate sectors.
"The potential for infrastructure and renewable investment is immense; however, the supply side is just starting to accelerate," said Maurice Tulloch, CEO of international insurance at Aviva Plc, a multinational general insurer and life and pension management firm based in London. Aviva is looking to invest £500 million per year over five years in low-carbon infrastructure, Tulloch said.
Scientists increasingly are able to link climate change to extreme events, including heat waves, coastal flooding and dramatic changes in rain and snow patterns, Rosina Bierbaum, professor of natural resources and environmental policy at the University of Michigan, said at the start of the conference hosted by Ceres, the United Nations Foundation and United Nations Office for Partnerships. Those changes threaten existing infrastructure and natural ecosystems and can disrupt the global supply chain, she said.
Moreover, significant public and private financing is key to addressing climate change, Bierbaum continued. The Organisation for Economic Co-operation and Development estimates that US$6.3 trillion in infrastructure investments need to be made annually around the world between 2016 and 2030 to meet development needs associated with climate change.
Bierbaum said the investment community can play a key role in helping fund those changes. "The climate finance gap does not seem insurmountable but it does require serious engagement with new actors," she said. "It's going to be a rough ride, but I think the investment community can really steer and accelerate the journey" to achieving the Paris Agreements goals of limiting global warming to 2 degrees Celsius above preindustrial levels.
Investors say they are looking for long-term investment opportunities to aid in the transition to a low-carbon economy.
In Canada, Caisse de dépôt et placement du Québec, or CDPQ, which manages more than 40 organizations including pension and insurance plans, is taking a multipronged approach to considering climate change in all of its investment decisions, said Michael Sabia, CEO of CDPQ. Sabia said he does not foresee any shortage of investment opportunities, noting that investors can help cities rebuild and retrofit buildings and transit systems. And money will be needed to fund technological improvements in water treatment systems and install smart grid systems around the globe, which could cost "trillions of dollars," Sabia added.
Moreover, "to ensure that we're well positioned for the future," CDPQ has committed to increasing its current investments in low carbon assets 50% by 2020, he said.
President Donald Trump has pledged to withdraw the U.S. from the Paris climate accord, but a number of businesses, investment funds, and local and state governments plan to continue pursuing the goals of the climate agreement.
The climate risk conference featured officials from big investment firms and funds as well as companies from around the globe that are actively engaged on climate issues. Many firms that are heavily invested in index funds also are pressuring companies in those indices to disclose their climate risks and establish environmental, social and governance criteria that help investors measure the sustainability of those companies and their role in society.
U.S.-based pension funds in states such as New York and California also are actively pursuing low-carbon investments and looking to divest from companies and funds that include major greenhouse gas emitters.
"We've been working to be much more ambitious in terms of sustainable investing" in recent years, said New York State Comptroller Thomas DiNapoli, who oversees the nation's third-largest public pension fund, the New York State Common Retirement Fund. "We've particularly been concerned about how we can address the issue of climate risk and benefit our portfolio."
DiNapoli at the conference announced that the pension fund is adding US$2 billion to a low-emissions index fund it established in 2016. The retirement fund now has US$4 billion in the low-emissions index fund, a fraction of the pension fund's US$201.3 billion in assets. DiNapoli and the fund, through shareholder proposals, persuaded companies such as Duke Energy Corp., Exxon Mobil Corp., and PPL Corp. to begin disclosing their climate risks.
Brian Deese, who heads up sustainable investing at large asset management firm BlackRock Inc., said investors "can no longer ignore climate change."
"I think it's safe to say that if you are not a climate aware investor, then you are fundamentally not doing your job," said Deese, a former energy and climate advisor to President Barack Obama. "That's true because of the wide array of risks ... be they physical or regulatory. It's also true because of emerging evidence about the performance of companies over time," said Deese, who contends companies are better financially positioned if they adopt policies on climate and other environmental, social and governance issues.
BlackRock in December 2017 called on about 120 companies to align their climate risk reporting with the recommendations of the Task Force on Climate-related Financial Disclosures, and BlackRock CEO and Chairman Larry Fink in January issued a letter calling on companies to be socially responsible.
"This is not a peripheral exercise," Deese said. "This is the idea that those companies that are best positioned to address central issues can actually outperform over time." And it is about using data to identify insights about the environment, human capital and about governance "that are not captured in traditional financial analysis," he added. "And at the end of the day, it's about mitigating risk or enhancing return."
