Group of 285 global investors with more than $20T in assets under management calls for urgent action on investment-grade climate change and energy policies; guidelines for governments
24 October 2011
Saying that “investment-grade climate change and clean energy policy is required to shift private sector investment from high-carbon to low-carbon assets”, a group of 285 investors has urged governments and international policy makers to take new and meaningful steps in the fight against climate change.
In a joint statement, the group, representing more than $20 trillion in assets under management, stressed the urgent need for policy action which stimulates private sector investment into climate change solutions, creates jobs, and is essential for ensuring the long-term sustainability and stability of the world economic system.
Investor support for climate action as expressed in such a statement has more than doubled since November 2008, when 150 investors with $9 trillion in assets under management first came together to urge government leaders to act on climate change.
Current levels of investments in low-carbon technology and infrastructure are substantially lower than the $500 billion per year deemed necessary by the International Energy Agency (IEA) to hold the increase of global average temperatures below 2 °Celsius—the target agreed to in Cancun last year.
Climate change presents major long-term risks to the global economy and to the assets in which we invest. At the same time, well designed and effectively implemented long-term climate change and clean energy policy (“investment-grade policies”) will not only present significant opportunities for investors in areas such as cleaner and renewable energy, energy efficiency and decarbonization, but will also yield substantial economic benefits including creating new jobs and businesses, stimulating technological innovation, and providing a robust foundation for economic recovery and sustainable long-term economic growth.
...With data from the IEA indicating that global energy-related emissions of carbon dioxide (CO2) in 2010 were the highest on record, it is clear that the need for action is urgent. However, current levels of investment in low-carbon technologies fall far short of what is needed. Private investment will only flow at the scale and pace necessary if it is supported by clear, credible and long-term policy frameworks that incentivize investments in low-carbon technologies rather than continuing to favor carbon-intensive energy sources. Therefore, as we approach the United Nations Framework Convention on Climate Change (UNFCCC) Seventeenth Conference of the Parties (COP-17) in Durban, South Africa, in November-December 2011, we wish to reiterate the calls we have made in previous Investor Statements about the importance of both domestic and international climate change policy in catalyzing the required levels of investment needed to transition to a low-carbon economy, and to outline the elements of “investment-grade climate and energy policy” necessary to attract large scale investment in solutions to climate change.—2011 Global Investor Statement on Climate Change
Coordinated by three leading investor groups on climate change—the US-based Investor Network on Climate Risk (INCR); the European Institutional Investors Group on Climate Change (IIGCC); and the Investors Group on Climate Change (IGCC) in Australia and New Zealand—alongside the United Nations Environment Programme Finance Initiative (UNEP FI), and the Advisory Council of the Principles for Responsible Investment (PRI), the statement represents the largest ever grouping, by both number of signatories and assets under management, to call for policy action on climate change.
The statement is supported by the findings of a report commissioned by the three investor groups and UNEP FI. This report underscores the importance of investment-grade policy which will enable institutional investors to allocate capital towards climate change solutions, including appropriate government incentives to compensate for heightened risk and sufficient scale of technology deployment. The report also emphasizes that long-term policy stability is critical and retroactive changes can significantly damage investor confidence. Contained within the report are case studies on the climate policies of six major emitters and further examples of investment-grade policy, which may prove instructive for national governments and negotiators considering future policy initiatives.
Investors sent the statement and report to the G20 and other governments in anticipation of the United Nations Framework Convention on Climate Change at Durban in November/December. On the domestic policy front, the investors said that governments need to ensure that effective policies exist. According to the group, an integrated climate change and clean energy policy framework should include:
Clear short-, medium- and long-term greenhouse gas emission reduction objectives and targets, and comprehensive, enforceable legal mechanisms and timelines for delivering on these objectives and targets.
Comprehensive energy and climate change policies that accelerate the deployment of energy efficiency, cleaner energy, renewable energy, green buildings, clean vehicles and fuels, and low- carbon transportation infrastructure.
Comprehensive policies directed at reducing greenhouse gas emissions from sources other than energy, for example waste, industrial emissions, fugitives, land-use change, deforestation and agriculture.
Policies supporting investment in renewable energy generation, including measures that support the access for electricity generated from renewable energy sources to electricity transmission and distribution infrastructure.
Financial incentives that shift the risk reward balance in favor of low-carbon assets. This includes strong and sustained price signals on carbon, well-designed carbon markets and other appropriate incentives to enable private investment in clean energy. An integral part of this should be the removal of fossil fuel subsidies.
Adaptation measures to reduce unavoidable climate impacts.
Corporate disclosure of material climate change-related risks.
Furthermore, the group aid that governments need to ensure that the policies are well designed. Based on their experience with investing in renewable energy and energy efficiency, the investors suggested that investment-grade climate change and clean energy policy should:
Provide appropriate incentives to invest. Specifically, policy needs to recognize that investing in areas such as renewable energy and energy efficiency is not risk free, and therefore needs to be designed to allow investors to make appropriate returns relative to the risks that they are taking and the costs, risks and returns of other investment opportunities.
Recognize that scale is critical to addressing risk and enabling low-carbon investment opportunities to be more cost-effective relative to high-carbon opportunities. Scale allows unit costs to be reduced and allows expertise in the development and deployment of new technologies to be gained.
Be transparent—i.e., it should be clear how the policy is designed and implemented (or intended to operate in the case of new legislation).
Be of appropriate duration. Investors—in particular, those making large investments in areas such as infrastructure and power generation—need long-term policy certainty. If policy instruments have a short time horizon or there is the likelihood that future governments will significantly change the policy framework, investors will tend to invest elsewhere.
Avoid retroactivity. Where governments wish to adapt or change policy they should commit to clear prospective timeframes and set clear criteria for these changes.
Seek to harness the power of markets to find the least cost ways to deliver on climate change objectives.
Align with wider policy goals including economic, energy, resources and transport policy objectives.
Governments need to ensure the effectiveness of the institutions charged with implementing these policies, the investors said. In particular, relevant regulatory or oversight bodies should have appropriate resources, and have the ability and authority to ensure that climate change and related energy policies are effectively implemented.
International policy recommendations include:
Continued work towards a binding international climate change treaty that includes all major emitters and sets short-, mid-, and long-term greenhouse gas emission reduction targets.
Support the development of the Green Climate Fund and other comparable funding mechanisms.
Accelerate efforts to reduce emissions from deforestation and forest degradation (REDD and REDD+).
Investor Network on Climate Risk (INCR) is a North American network of institutional investors focused on addressing the financial risks and investment opportunities posed by climate change. INCR currently has more than 100 members with more than US$10 trillion in assets. INCR is a project of Ceres, a coalition of investors and environmental groups working to integrate sustainability into the capital markets.
The Institutional Investors Group on Climate Change (IIGCC) is a forum for collaboration on climate change for investors. IIGCC brings together European investors to engage with policymakers, companies and investors on addressing long-term risks and opportunities associated with climate change. The group currently has more than 70 members, including many of the largest pension funds and asset managers in Europe, representing assets of around $10 trillion.
Investor Group on Climate Change Australia/New Zealand (IGCC) The IGCC represents institutional investors, with total funds under management of approximately $700 billion, and others in the investment community interested in the impact of climate change on investments. The IGCC aims to encourage government policies and investment practices that address the risks and opportunities of climate change, for the ultimate benefit of superannuants and unit holders.
United Nations Environment Programme Finance Initiative (UNEP FI) is a global partnership between the United Nations Environment Program (UNEP) and the global financial sector. UNEP FI works closely with more than 200 financial institutions who are signatories to the UNEP FI Statements. Its mission is to identify, promote, and realize the adoption of best environmental and sustainability practice at all levels of financial institution operations.
Advisory Council - Principles for Responsible Investment Initiative (PRI) The Advisory Council is the strategic governance body of the Principles for Responsible Investment Initiative (PRI). Established in 2006, the PRI Initiative is managed by the PRI Secretariat to promote responsible investment and support investors by sharing best practice and facilitating collaboration.
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