25 May 2012 – Picture this: $US30 trillion of global superannuation funds invested in low carbon assets with a return horizon of 20 years minimum. With about 10 per cent of that amount typically allocated to direct property, that’s $3 trillion of sustainable buildings and infrastructure.
Who needs governments?
Those who are starting to give up on many western governments for their inability to create the change that’s necessary to survive (let alone thrive) environmentally, financially or socially, are starting to turn their sights to a much more powerful source of transformation. Money.
According to Julian Poulter, the business director for The Climate Institute, “It’s always been about money and it always will be.”
Poulter is not much one for ethical investment either. For the same reason.
In his view there are three things that are capable of tackling climate change: innovation, strong regulatory framework or investors moving money around.
“Frankly the first two are unlikely at the moment,” he says.
Poulter’s background includes investment finance, consulting with KPMG, the oil and gas industry, and chief executive of two software companies and a consultancy.
Now he’s turned his mind to unleashing the third force for change.
For the past three years, Poulter has been working on a pilot study to launch the Asset Owners Disclosure Project, targeting the world’s 1000 biggest pension funds and institutional investors to think about what they do with their money, and to disclose it.
Board members on AODP include Sharan Burrow, based in Brussels, Andrew Hilton in London and John Hewson, in Australia.
In Poulter’s mind the focus on investment returns within a climate framework are little different to his former life in the depths of the capital markets.
The point is to evaluate the real risk of the asset and to add another logical filter: do the investment choices actually help or hinder a world that’s worth living in over the next 20 or 30 years?
In a way it’s incredible that superannuants might be helping to make the world they and their families will inhabit less hospitable and dangerous.
The reality is that many pension fund assets are tied to carbon heavy investments. The irony is that they have long term payback horizons.
“These tend to pay back their owners over a 25 to 40 year period: power stations, mining, manufacturing plants and exploration facilities and designs of aircraft that need to last 40 years.
“And if they don’t pay back their owners, then someone is going to get left short of a bob or two and that’s what a stranded asset is.
“When the sub prime crisis hit there was a massive deleveraging in financial markets.”
In Poulter’s view, it’s not over yet – it’s simply acquired new names such as EU credit crisis – and will probably take another five years to play out.]
Ignoring climate change is like risking another sub-prime fiasco, but worse.
Climate sceptics continually ask that we ignore climate change because the scientists give it “only” 95-98 per cent certainty.
“If that was only 10 per cent, I’m not sure it would make a great deal of difference to what we should do about it,” Poulter says.
“At some point the regulators will panic and produce a rapidly increasing carbon price and that would leave a whole bunch of assets stranded.”
“The problem is that carbon deleveraging might take 10 years. China might decide to leapfrog the US economy by using clean energy.
“There’s all sorts of ways this can play out.”
So what’s stopping a shift into assets less likely to become stranded?
“Even though the objective is incredibly simple, it’s surrounded by the complexity of the financial system and vested interest, and frankly by human nature,” Poulter says.
“Even at the company level, companies are like robots. They do what they have to do within their limitations. Many board members would like to do more but they feel hamstrung.”
Change might be on the way.
At a recent media briefing JP Morgan revealed it was working with technology experts to deliver greater interaction with investors via an Iphone or Ipad applications, to gain feedback and preferred direction of investments.
It’s not a huge leap of imagination to think that at least some of that greater input will be green.