Global Investors Think Climate Action And Economic Well-Being Go Great Together

CREDIT: Shutterstock

Over 340 global investors who represent more than $24 trillion are now on record that aggressive climate action is the friend rather than the enemy of the global economy.

According to a statement from the group, government leaders must provide stable and reliable carbon pricing policies that have real economic bite in order to lay the groundwork for the massive world-wide investment push onto renewables — and off of fossil fuels — necessary to head off climate change. Four investor groups concerned with climate change — the U.S.-based Ceres’ Investor Network on Climate Risk, the European Institutional Investors Group on Climate Change, Australia and New Zealand’s Investors Group on Climate Change, and the Asia Investor Group on Climate Change (AIGCC) — coordinated the statement, along with the United Nations Environment Program Finance Initiative and Principles for Responsible Investment.

It’s the largest such move made to date, and sends a clear signal that some of capitalism’s biggest movers and shakers see aggressive climate action as necessary for — rather than antithetical to — future economic prosperity. “The perception prevails that we need to choose between economic well-being or climate stability,” said Achim Steiner, UN Under-Secretary-General and Executive Director of the UN Environment Program. “The truth is that we need both. What is needed is an unprecedented re-channelling of investment from today’s economy into the low-carbon economy of tomorrow.”

As Paul Krugman pointed out in the New York Times, a study by the New Climate Economy Project and a working paper from the International Monetary Fund recently found that, because of advances in renewable technology and the second-order health benefits of cutting fossil fuel emissions, strong policies to cut carbon emissions would either put a very small drag on economic growth or lead to faster growth. Recent modeling of an extremely aggressive national carbon tax for the United States found a similar result even before the health benefits are factored in, as did a recent assessment of upcoming British policy to cut emissions from its economy.

The statement also caps off several years over which global investors have become progressively more concerned with the risks climate change poses to their portfolios. Efforts have increased to bring climate change considerations into investment, new tools have been developed to guide that investment, and investors are considering the way climate change can threaten infrastructure and business models, as well as force fossil fuel investments to remain in the ground.

“The international investor community has today made it clear that the status quo on climate policy is not acceptable,” said Stephanie Pfeifer, chief executive of the European Institutional Investors Group on Climate Change. “Investors are taking action on climate change, from direct investment in renewables to company engagement and reducing exposure to carbon risk.”

“But to invest in low carbon energy at the scale we need requires stronger policies.”

The world’s total renewable energy capacity grew at its fastest pace ever in 2013, but global investment in renewable energy still only amounted to $254 billion in 2013. The International Energy Agency (IEA) has estimated that global investment in renewables much reach $1 trillion every year from now until 2050 if the global temperatures are to be kept from rising more than 2°C — the threshold beyond which scientists think climate change will get truly catastrophic. But the IEA anticipates global investment will instead plateau around $230 billion annually through 2020. Bloomberg New Energy Finance thinks two-thirds of the $7.7 trillion the world will likely invest in power plants between now and 2030 could go to renewables — but that still falls well short of the mark.

As the investors point out, and as other reports have also made clear, a key problem is the failure of global governments to set up a policy framework for smooth and reliable investment in renewables. While a large number of countries around the world either have a price on carbon, are implementing one, or are considering implementing one, the efforts remain largely uncoordinated or beset by difficulties — or, as in the case of the United States, absent entirely. The lack of a carbon price also creates an implicit subsidy for fossil fuels, since the costs of the damage caused by climate change are foisted onto society as a whole. And plenty of countries still subsidize fossil fuels directly.

But the hope with the new investors report is that pressure from some of global capitalism’s biggest movers and shakers could get governments to change their act.

“Investors are owners of large segments of the global economy as well as custodians of citizens’ savings around the world,” Steiner continued. “Having such a critical mass of them demand a transition to the low-carbon and green economy is exactly the signal governments need in order to move to ambitious action quickly.”