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Executive Perspectives

EXECUTIVE PERSPECTIVE: The power and imperative of collective global investor leadership

Mindy Lubber

21 Dec 2018

As the dust settles in Poland after the COP24 international climate negotiations, the true scope and scale of our challenge has come into plain view. The window of opportunity to avoid the worst human and economic impacts of climate change is closing rapidly. As recent reports from the Intergovernmental Panel on Climate Change and the U.S. National Climate Assessment make clear, we are in an all-hands-on-deck situation that requires an unprecedented transformation of our global economy.

With their ability to redirect the flow of capital and their influence as both shareholders and policy advocates, investors are absolutely critical to catalyzing the necessary changes. What’s more, given the myriad risks associated with owning high-carbon assets and the boundless opportunities embedded in the transition to a low-carbon economy, they have a clear fiduciary duty to do so. As the National Climate Assessment highlights, climate change stands to take a 10 percent bite out of the U.S. economy, as well as devastate thousands of lives, if we fail to act. That’s why I called for 2018 to be The Year of Investor Leadership on Climate at the beginning of the year. And while we still have a long way to go, we are seeing significant progress.

Some of the world’s most powerful public pension funds and asset managers heeded the call to act on climate in 2018. Whether by investing in low-and zero-carbon solutions, standing up to advocate for policy, or engaging with companies in their portfolios to reduce emissions, improve disclosure, and incorporate sustainability from the board room to supply chains, we’ve seen more investor leadership than ever. In fact, at COP24, a record number of investors – 415 investors with $32 trillion in assets under management – called on world governments to achieve the goals of the Paris Agreement, put a price on carbon, and phase out of thermal coal power — overshadowing the Trump administration’s pro-coal sideshow.

“Despite the misguided policies of the present administration, global efforts to address the very real threat climate risk presents to the economy, financial markets and investment returns are ongoing,” New York State Comptroller Thomas P. DiNapoli told the BBC. “We are still in and remain committed to supporting the Paris Agreement’s climate goals.”

DiNapoli’s statement dovetailed with the New York State pension fund’s newly announced commitment of $3 billion to its Sustainable Investment Program, raising its value to more than $10 billion. And just last week, DiNapoli, along with the Church of England, co-filed a shareholder resolution calling on ExxonMobil to set commitments to reduce greenhouse gas emissions in line with the Paris Agreement. A number of institutional investors have joined the Fund and the Church Commissioners in supporting the request, including CalPERS — who led proxy solicitation last year and the year prior — as well as HSBC Global Asset Management, Presbyterian Church USA and SHARE on behalf of Fonds de Solidarité des Travailleurs du Québec (FTQ).

These investors are picking up the mantle of leadership and stepping into their role as stewards of a global economy that so profoundly affects their portfolios, and it is paying off. Just last month, Shell, the second largest publicly traded oil company, announced a new commitment to reduce greenhouse gas emissions — crucially, including emissions tied to use of its products — by 20 percent by 2035 and by 50 percent by 2050, agreeing to tie executive compensation of 1200 corporate leaders to meeting specific reduction goals. This announcement comes after years of engagement with investors, and most recently from investors who make up some of the 310 investors with $32 trillion in assets under management participating in Climate Action 100+. While Shell’s commitment falls short of aligning its business strategy with the goals of the Paris Agreement it demonstrates the power of collective global investor engagement on climate and serves as an important step in the right direction.

There are many other recent signs of progress being made by companies in line with investor engagement as part of Climate Action 100+.

  • Xcel Energy, one of the largest U.S. electric power companies, recently pledged to cut emissions 80% by 2030 and to fully phase out carbon emissions by 2050, the first major utility in the country to set such a goal.
  • Maersk, the world’s largest shipping company, announced it would also cut its carbon emissions to zero by 2050, calling on others in the shipping industry to do the same.
  • Global power company AES released a scenario analysis that highlights its planned pivot from coal to clean energy.
  • American Electric Power adopted new long-term targets for lowering greenhouse gas emissions by 80 percent by 2050.

Beyond the work of Climate Action 100+, more than 500 global companies have committed to science-based targets for reducing their greenhouse gas emissions, and 150 have committed to powering their operations with 100 percent renewable energy — often at the request of their investors.

While we are are encouraged by this progress, we also know that it’s not nearly sufficient. Despite the leadership from North American Climate Action 100+ investors, the U.S. still holds more than 35 percent of institutional investment for the coal industry, the largest share in the world. Globally, the world’s 15 largest asset managers have increased their holdings in thermal coal by 20 percent since the signing of the Paris Agreement, and nearly every country’s emissions are continuing to rise despite the alarm bells sounding off at full volume.

As the climate reports make clear, we have no choice. If we don’t act right now, we risk a global financial meltdown. We risk a devastating loss of human lives. We risk failing to ensure a sustainable future for our children and grandchildren. Investors have the power to drive these changes. Many of them are doing so, but many more are not — at least not yet. As we enter 2019, let’s all take stock of our progress and aim for exponential improvement — with investors taking center stage as catalysts for a sustainable economy.






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