A new survey of investors and asset managers from around the world revealed rapidly growing concern that national policies to cut greenhouse gas emissions are “inadequate, inconsistent and halting.” The report was put together by the Global Investor Coalition On Climate Change, which covers investor networks in North America, Europe, Asia, Australia, and New Zealand. Together it represents 84 different firms — including both owners and managers — with a combined total of $14 trillion in assets.
Among the headline findings from the Global Investment Survey On Climate Change — the 3rd of its kind to be carried out — was that 83 percent of fund owners now take climate change into account when selecting their managers. Sixty-nine percent said those considerations influenced their final decision, which is up from 43 percent last year. Sixty-three percent of owners were monitoring their managers for how they factor climate change into investment decisions, and 53 percent of managers say they’ve decided to disinvest from or avoid investing in certain equities because of climate concerns.
But underlying the numbers is a growing frustration that national governments are not doing enough to lay down consistent and long-term policies. The desire and capital to invest in green technology is there, but the clear rules to guide it often are not:
[T]he flow of capital towards low-carbon solutions and away from carbon-intensive technologies risks being undermined by inadequate, inconsistent and halting policy efforts by world governments, especially in major greenhouse gas emitting nations. Despite overwhelming scientific evidence that human activity is warming the planet with increasingly serious economic consequences, policymakers have failed to act with the level of urgency and clarity the problem requires. The need for more decisive action by investors, by businesses and by policymakers is increasingly clear. […]
[C]redible, consistent legal frameworks regulating greenhouse gas emissions and incentivising clean energy investment are essential to achieving the necessary transition to a global low carbon economy. Institutional capital can and will flow at scale into clean energy and low carbon solutions only with adequate policy support that provides the necessary degree of investment certainty.
To give one concrete example, British investment in clean energy dropped from $4.2 billion in the July, August and September period of 2010 to $1.7 billion at the end of June 2012. The lack of clear climate policy means it’s difficult to calculate risk or possible returns, leading many investors to back off funding for green power plants and other projects.
There’s also plenty of previous evidence that concern over climate change is gaining momentum within international investment and finance circles. Ceres, a U.S. organization that supports sustainable business practices and often partners with the Global Investor Coalition On Climate Change, recently released figures showing a big uptick in climate concerns amongst U.S. shareholders. 110 resolutions relating to climate change and environmental worries were filed at 94 different companies this year — an increase from just 30 a decade ago. Many of the filers were major pension funds and institutional investors totaling over $500 billion in assets. One of the world’s leading reinsurers, the Germany-based Munich Re, has been advocating since 2005 for more policy responses to address climate change through its Munich Climate Insurance Initiative. In fact, the threat posed by climate-change-driven extreme weather to physical infrastructure and assets is increasingly worrying large swaths of the insurance industry.
The new survey’s point that “consistent legal frameworks” are needed to guide capital flow is especially noteworthy. Because it fails to put a price on the economic damage climate change can cause — via either a carbon tax or regulation — the United States is implicitly subsidizing fossil fuels to the tune of $502 billion a year. That’s more than any other country, as China comes in second at $279 billion. And so far the House GOP appears hell bent on continuing this state of affairs.
The good news is that investors are still making progress on an individual basis: 70 percent of owners and 60 percent of managers reported low carbon investments. And one quarter of the owners surveyed are still making changes to their investment strategies based on their own assessments of climate risk, global climate policy uncertainty or not.