Published on 05 July 2017

SUSTAINABLE FINANCE

Investors rally for the energy transition

Faced with the risks and opportunities associated with the energy transition, more and more investors are campaigning to demand a low-carbon economy. They call themselves ethical investors and they aim to influence both firms and regulators. They are part of a movement that received its initial boost with COP 21 and has been re-energised by Donald Trump's decision to pull the United States out of the Paris Agreement.

COP21 had an accelerating role in mobilizing investors against climate change
Crédit: ERIC PIERMONT AFP

The Paris Agreement, the landmark international climate deal that aims to limit global warming to well below 2°C, has galvanised investors all around the world.

 

International mobilisation

 

Ratified by more than 140 countries, the Paris Agreement introduces a global framework for the energy transition and enables economic and financial players to anticipate long-term trends and improve their management of the risks associated with climate change and the energy transition. That is why, even before the agreement was signed, more than 120 international investors joined the Paris Pledge for Action, which calls for a low-carbon and climate-resilient economy.

 

This mobilisation has only intensified since Donald Trump’s arrival at the White House and America's withdrawal from the Paris Agreement.

 

In May of this year, a letter signed by 217 asset owners (including AXA Group, BNP Paribas Asset Management and Caisse des Dépôts Group) representing over $15 trillion in assets under management called upon all the signatories to the Paris Agreement, especially the world's most powerful countries (the G7/G20 countries, also the world's biggest emitters), to use all possible means to meet the objectives, with or without the United States.

 

“As long-term asset owners, we believe that mitigating climate change is essential for safeguarding our investments,” reads the description of their approach. 

 

Regional efforts

 

The international mobilisation has inspired national and regional initiatives. In the United States, investors and companies have made repeated commitments to the fight against climate change.

 

A recent example is the We are Still In campaign, launched in response to the country's withdrawal from the Paris Agreement, but efforts go back further—several years ago in the case of Obama's Clean Power Plan.

 

In Europe, the Institutional Investors Group on Climate Change (IIGCC), which represents 140 members with $18 trillion in assets under management, routinely lobbies the European Union's bodies to adopt ambitious greenhouse gas emissions targets and impose strict energy efficiency standards for buildings.

 

Investors putting pressure on companies

 

Investors are also coming together to demand corporate accountability.

 

One such initiative is Carbon Action by CDP, an international coalition of investors with assets of $25 trillion demanding corporate environmental disclosure. The initiative goes beyond asking companies to disclose their direct and indirect greenhouse gas emissions. It also demands they pursue clear emissions reduction targets and quantify the return on investment of the actions they undertake. In 2017, CDP will also call on companies to join the We Mean Business Coalition, a climate action pledge by the world's most influential businesses, and to commit to using science-based targets to stay within the 2°C goal.

 

Meanwhile, activist shareholders have forced big names like Exxon and Shell to adopt stricter climate reporting requirements. While some are content with demanding greater transparency, others go further still. For example, by asking companies to shift strategies in the face of carbon risk.

 

Béatrice Héraud @beatriceheraud


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