green economy investment illustration
illustration: Yulong Lli & Panyeung Chan

A global coalition of 288 institutional investors with US$26 trillion (AU$34.1 trillion) in assets under management, including 23 Australian investors with close to $2 trillion in assets, have issued a call to leaders at the G7 meeting in Canada this week to step up action on climate change.

The 2018 Global Investor Statement to Governments on Climate Change was delivered to the United Nations Framework Convention on Climate Change and G7 government leaders.

“The global shift to clean energy is underway, but much more needs to be done by governments to accelerate the low carbon transition and to improve the resilience of our economy, society and the financial system to climate risks,” the statement said.

“We are concerned that the implementation of the Paris Agreement is currently falling short of the agreed goal of ‘holding the increase in the global average temperature to well below 2-degrees Celsius above pre-industrial levels’.”

Emma Herd, Investor Group on Climate Change

The statement was developed by Asia Investor Group on Climate Change, CDP, Ceres, the Investor Group on Climate Change, Institutional Investors Group on Climate Change, Principles for Responsible Investment and UNEP Finance Initiative.

Key actions called for include government support to accelerate private sector investment in the low carbon transition and a commitment to improving climate-related financial reporting.

Patricia Espinosa, executive secretary of the United Nations Framework Convention on Climate Change, said it was “extremely encouraging” to see so many institutional investors in support of the message.

Emma Herd, chief executive of the Investor Group on Climate Change, said investors were stepping up in “unprecedented numbers” to act on climate change.

“Investors could do even more if governments delivered the policies required to effectively manage climate risk and accelerate investment in low carbon solutions.”

Ms Herd told The Fifth Estate that the Australian signatories represented just under $2 trillion of the nation’s $2.6-$2.7 trillion institutional investment sector. Their value is also an increase on last year’s signatories combined capital worth.

There are also more signatories in the works, she said, with many expected to sign the statement ahead of the G20 meeting later this year.

The investors include a mix of retail and industrial funds, and many of the “big mainstream funds”.

Ms Herd said all the funds had slightly different strategies in terms of assessing and managing carbon risk across their portfolio.

Some have a full divestment approach, where they will not invest in entities with significant activity in thermal coal-related activities.

Some choose to invest in companies that may have thermal coal involvement but appear to be managing the transition better, and others keep their holdings in carbon-intensive entities but take a “greater engagement approach”.

Overall, investors are increasingly looking for entities that have policy frameworks to manage carbon risk.

“We are seeing more and more funds integrating climate change into their funds and policies, and into strategic asset deployments,” Ms Herd said.

They are looking to governments to show similar leadership.

Where are the investment hot spots?

In terms of where the money is flowing to in the search for low carbon investments, Ms Herd said the biggest chunk was in renewable energy.

Across the board there is an appetite for renewables at the utility scale, she said, but “good deals are hard to find”.

Projects are hard to come by that meet many investors’ risk and return profile. Part of the reason is the Australian government’s deficient regulatory framework and policy settings.

Property is regarded as a good low-carbon investment, Ms Herd said.

Decarbonising infrastructure such as ports and airports in the investment portfolio is also of interest to some. An investor in airports, for example, might be looking for how that asset is working to reduce the carbon emissions associated with its operation.

There are also some “interesting” moves in the plantation forestry space, however a current problem is the size of the assets available to invest in, Ms Herd said.

The agriculture sector is also attractive, particularly as energy efficiency gains traction in the sector. The dairy industry, for example, has been working to reduce its energy-related emissions footprint.

With companies that operate where the physical risks of climate change are a genuine concern, or where an entity has a land-exposed supply chain, investors are looking for those that act to decrease their risk exposure and manage climate change risks.

EVs are not really on the Australian investor radar to any significant extent, except in so far as investors are placing capital within the supply chain through investments in resources such as lithium. However, Ms Herd said in parts of Asia such as Hong Kong, where EV uptake is greater, investors are keen on this part of the auto sector. It is a case of “watch this space” for Australian money, as she said there was a ”huge amount of interest” in EVs as a future prospect.

There is also a lot of interest in circular economy and resource efficiency operations. These are likely to appear in any investment approach where a green index fund is being created comprising a “big universe of green companies”.

The shadow carbon price

Ms Herd said she genuinely thinks we are seeing a “big disconnect” between what investors are doing and what we read in the papers about political debates around climate change.

While a proper economy-wide carbon pricing policy is still not on the national policy agenda, Ms Herd said it was something the IGCC and its investor members support.

Even without a national policy framework, she said shadow carbon pricing was happening, both as part of investment planning and within many companies.

When an investor asks a company what internal price it is putting on carbon, many can answer the question easily, she said.

“We are still seeing that signal at play.”

The shift is inevitable

Fiona Reynolds, chief executive of the Principles for Responsible Investment, said we need to keep “raising global ambitions to cut CO2” – and investor engagement is essential to this process.

“The transition from a high-carbon to a low-carbon economy is inevitable and there is no doubt that policymakers are feeling increased pressure to act on this issue,” she said.

“Investors must keep making their voices heard by encouraging governments to accelerate action on the Paris Accord. The private sector must also do its part to ensure that capital allocation flows are directed to low carbon initiatives.”

  • Read the full statement and join the movement here

Australian signatories to the G7 statement:

  • Ausbil Investment Management Ltd Contact
  • Australian Ethical Investment
  • Australian Super
  • Catholic Super
  • Cbus
  • Christian Super
  • Colonial First State Global Asset Management
  • First State Super
  • Frontier Advisors
  • IFM Investors
  • Labour Union Co-operative Retirement Fund (LUCRF Super)
  • Local Government Super
  • Nanuk Asset Management
  • New Forests
  • Palisade Investment Partners
  • SLM Partners Australia
  • Statewide Super
  • VicSuper
  • Vision Super Pty Ltd
  • BT Financial Group
  • Impax Asset Management
  • Solaris Investment Management

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  1. This makes Adani and the Australian Liberal Party look even more like a pack of goons running roughshod over a sleepwalking populace. Four years after Sean Kidney addressed the LSE stating we have five years to start taking drastic measures, the cogs seem to be turning rustily. The writing peeled off the wall last century and now those who want their investors and shareholders not to miss out on a piece of the overcooked pie which is our global initiative to address our headlong foray into planet wrecking, are making some moves, while the mainstream media would happily keep the “losers” in the dark.