The number of investor coalitions dedicated to climate solutions is growing fast before COP21 next December in Paris. The leaders of this movement are responsible investors.
Novethic’s Research Center gives you the keys to understand why they’re acting on climate change and disentangle the links between carbon risk, stranded assets, divestment and ESG integration into asset management.
Growing and global engagement
More than 550 investors have made a commitment to the climate in one respect or another.
From ethical investors to responsible investors
Ethical investors refusing to invest in coal or companies with the highest greenhouse gas emissions have now been joined by conventional responsible investors.
Carbon risk and NGO pressure: two key factors
The two main factors encouraging investors to initiate engagements are the carbon risk weighing on fossil fuels and increasing pressure from civil society to replace fossil fuels by renewable energies.
The use of varied strategies
These investors are employing a range of strategies to reduce the emissions financed by their portfolios, including shareholder engagement, exclusion, best-in-class selection and theme-based investment.
Covering topics such as carbon footprint, low-carbon indices and the fossil-fuel business model vs. the renewable-energy business model, the first-person accounts from observers and players brought together by Novethic for these finance- and climate-focused events are invaluable.
Climate finance expert, KEPLER CHEUVREUX
Head of European Network, PRINCIPLES FOR RESPONSIBLE INVESTMENT (PRI)
Christine TØRKLEP MEISINGSET
Head of ESG Research and Portfolio Manager,STOREBRAND
Business Climate Summit - 20 and 21 May, Paris
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Climate Finance Day - 22 May, Paris
Novethic Annual Event - 24 November, Paris
COP 21 - From 30 November to10 December, Paris le Bourget
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If more and more investors are making climate commitments, it is largely because of their full or partial acceptance of concepts that have developed across the globe in less than five years.
The notion of carbon risk developed by the UK-based non-profit Carbon Tracker Initiative has gone mainstream with extraordinary rapidity. This risk is financial in nature and poses the greatest threat to the most carbon-intensive companies, starting with coal and oil producers. It posits that these companies' market valuation will shrink drastically when they can no longer continue their carbon-intensive activities. They will be in this situation if regulations combine with shifting market trends to impose maximum GHG emissions compatible with the 2°C limit on global warming.
Carbon risk is related to another concept, stranded assets.
Go Fossil Free
These are assets liable to depreciation that are massively invested in extractive companies, either directly or through investment in the major stock market indices, where they are over-weighted. The value of these assets will collapse if regulations setting a 2°C limit on global warming are imposed, since this will prevent companies from exploiting their proven reserves. A drop in the value of these assets will affect all major asset owners.
Divest/Invest and Divest/Engage
This international civil society movement is using the carbon risk concept in campaigns like those conducted against apartheid. Its aim is to encourage investors to divest themselves of the 200 most carbon-intensive companies in the world. It is also attempting to get individuals to question their banks about their financing of fossil fuels. Carbon risk has already become a reputational risk for financial institutions.
While the idea is the same as for Go Fossil Free (divest portfolios of the most carbon-intensive companies), these initiatives urge investors to combine divestment either with green economy investment (Divest/Invest) or with shareholder engagement (Divest/Engage) to compel companies to decrease their emissions.