Investors Managing Almost Half of World’s Invested Capital Call For Urgent Action on Climate Change

The investors who are handling assets of $34 trillion and more that is nearly half the world’s invested capital are demanding urgent action on climate change from governments, piling pressure on the world’s 20 biggest economies’ leaders meeting this week.

Reuters witnessed an open letter to the “governments of the world” where groups representing 477 investors stressed “the urgency of decisive action” on climate change for meeting the target of the Paris Agreement.

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In Paris agreement, 2015, around 200 nations agreed to limit the rise of global average temperature to below 2 degrees Celsius above pre-industrial levels. Now the world is on track for at least a 3C increase by the end of the century with the current policies.

Before June 28-29 G20 summit in Japan, the letter comes as Antonio Guterres, United Nations Secretary-General, urges countries for more ambitious climate goals.

“There is an ambition gap… This ambition gap is of great concern to investors and needs to be addressed, with urgency,” a statement from the investors accompanying the letter said.

For strengthening Paris Agreement targets by 2020, Governments were urged to phase out thermal coal power and fossil fuel subsidies by set deadlines; fix a robust global carbon price by 2020 and improve financial reporting related to climate.

“It is vital for our long-term planning and asset allocation decisions that governments work closely with investors to incorporate Paris-aligned climate scenarios into their policy frameworks and energy transition pathways,” the statement said.

The signing authorities of the investor letter were the chief executives of the seven founding partners of The Investor Agenda, including the Institutional Investors Group on Climate Change and the United Nations-backed Principles for Responsible Investment.

Legal & General Investment Management and the California Public Employees’ Retirement System (CalPERS) were among the large investors signing the statement. However, the two most prominent asset managers of the world, BlackRock and Vanguard, did not sign.

While declining to give any specific reason for not supporting the call, a BlackRock spokeswoman referred to a statement from the annual report that said it typically does not join such initiatives. There may be overlap with the existing efforts of the company or misalignment of views.

On the other hand, a spokeswoman for Vanguard unable to give any specific reason said, it was concerned about the climate risk and its long-term impact and was engaged actively with several initiatives related to climate with an emphasis on proper disclosure.
According to a U.N.-backed panel of scientists, the cost of limiting global warming to 1.5C would be at least $830 billion a year, but it would likely be much higher in the case of inaction.

The Divesting Strategy

Many institutional investors have already started to divest from fossil fuel companies because of the risk that their assets will become stranded in case the cost of renewable energy falls.

The U.N.’s Guterres urged countries last month, not to approve new coal-fired power plants beyond 2020, and also subsidies of fossil fuel.

Carola van Lamoen, Head of Active Ownership at global asset manager Robeco, said: “As investors, in our view the development of new coal power plants after 2020 puts at risk both the return on investment and the world’s chance of limiting global warming in line with the goals of the Paris Agreement.”

Some countries still argue in favor of using fossil fuels to power their economic development.

However, only five out of 32 nations have targets in line with a 2C limit according to a report by researchers tracking the progress of the countries toward limiting global warming.

As per the report by the Overseas Development Institute thinktank on Tuesday, G20 governments boosted support for coal-fired power plants, mainly in poorer nations between $17 billion to $47 billion every year from 2014 to 2017.

In the G20 summit in Osaka this week, the host country, Japan, has been criticized for its plans to continue using coal. It backs utilizing the technology of carbon capturing and storing to trap emissions, but is costly and not yet commercialized.

Arindom Ghosh

A professional writer, blogger, copywriter, and a member of the International Association of Professional Writers and Editors, New York. He has been part of many reputed domestic and global online magazines and publications. An avid reader and a nature lover by heart, when he is not working, he is probably exploring the secrets of life.