Investor leadership on climate change

Climate change is a major source of opportunity and risk for investors. The International Energy Agency (IEA) estimates that around US$10 trillion must be invested by 2030 in low-carbon technologies if we are to achieve the 450ppm CO2 stabilization level accepted as moderately safe.* That is only one estimate, (many other such estimates can be found in other parts of the Caring for Climate series of reports), but it is clear the amount of capital needed to achieve a low-carbon economy is colossal, and many argue the lion’s share must come from private funding sources.

The good news is that even such large sums of money are within the long-term capacity of the financial sector, as long as the appropriate public policy incentives are in place. Indeed, the transition to a low-carbon economy will be a huge opportunity for investors.

On the other hand, climate change presents risks to investors. In the short term, carbon pricing will change the cost structure for many companies and the relative competitiveness of carbon-intensive business sectors. Over the long term, if unchecked, the changing climate could do severe damage to the economy, undermining the ability of pension funds and other long-term investors to finance their liabilities.

A growing number of large institutional investors accept these realities and are acting on them. The widespread adoption of the UN-backed Principles for Responsible Investment reflects the perception that climate change and other ESG issues must be addressed by investors.

It is becoming increasingly clear that the world will be effective at mitigating and adapting to climate change only if the investment community is actively engaged in the process. As this report argues, this is not just a matter of business as usual; leadership is needed within the investment community.

The first chapter of this report looks at the ESG movement in the context of climate change and explores the reasons behind it. The following chapters set out distinct leadership roles for investors arising from the climate challenge.

This report aims to take a snapshot of some of the activities already going on in these areas and highlight best practice where possible. It should be read in conjunction with its sister publications that make up the Caring for Climate series, published by the United Nations Global Compact.