2018 will be an important year in the race against time to safeguard the environment.
And like all serious athletes, PRI signatories will need determination to get to the finish line and peak emissions by 2020. Speed, endurance, power and co-ordination will be paramount.
Expectations are high, with Christiana Figueres having used a speech at Davos this year to remind investors to bring low-carbon commitments to the Global Climate Action Summit in California in eight months. The summit will be a key moment for business, investors, US states and civil society to press on in lowering emissions.
Positive talk will help, but not be enough to get investors over the finish line. Investors will need to work hard on making portfolios “fit” for the future, so that climate risks and opportunities can be embedded in investment strategy and products. This is going to be a hard slog. But leaving the job for later will make it even harder.
The real economy and companies are finding solutions. Budweiser, the world’s largest beer company, committed at Davos to making beer from 100% renewable energy. By 2020, AXA Group will quadruple green investments to over €12 billion and has already met its original €3 billion 2020 target.
The challenge at hand requires teamwork with all in the investment chain – asset owners, consultants, managers and financial analysts. Events are unfurling fast on low carbon and the phase-out of fossil fuels – but will this get us to the right place?
Recent developments include…
- Lloyds of London: announced coal divestment in January 2018, with Zurich Insurance having committed to this in December 2017.
- Norway’s oil fund (Government Pension Fund Global): is considering a recommendation to sell out of oil and gas stocks, based on financial arguments on oil price exposure. The fund owns US$38 billion of oil and gas stocks.
- New York City Pension funds: New York City Mayor, Bill di Blasio, announced that the five pension funds of the city will divest from fossil fuels ($5 billion in 190 companies).
- Climate litigation: the city of New York has filled a multi-billion dollar climate change lawsuit against the biggest oil majors (BP, Chevron, ConocoPhillips, Exxon Mobil, and Royal Dutch Shell). The basis of the lawsuit is that the city will have to spend billions to adapt to the consequences climate change; the companies knew but hid conclusions of their own research on climate change.
- PKA, LGIM: are among investors joining a new PRI-led engagement with the oil and gas sector on transition strategy and scenario analysis, following on from PRI-Carbon Tracker analysis ranking 69 projects based on capital expenditure and 2 degrees.
- China: accounted for 40% of green bond issuance in 2017, with two new PRI signatories.
- The Americas: announced regional cooperation on carbon pricing, with 42 national and 25 sub-national jurisdictions now putting a price on carbon. According to Nobel Laureate Joseph Stiglitz and Lord Nicholas Stern, meeting the world’s agreed climate goals in the most cost-effective way while fostering growth requires countries to set a strong carbon price, with the goal of reaching $40-$80 per tonne of CO2 by 2020 and $50-100 per tonne by 2030.
Key moments for investors in 2018
23-26 January: World Economic Forum Annual Meeting in Davos
The World Economic Forum’s Global Risk Report highlights climate and tech as posing the biggest risks to our world. Among world leaders, Indian Prime Minister Modi has highlighted climate change as one of three key global challenges, and President Macron has committed to shutting all French coal-fired power stations by 2021.
31 January: Investor Summit on Climate Risk, New York
Launch of The Investor Agenda, a call to action for investors worldwide to accelerate climate action towards 2020, including in low-carbon investment.
The PRI encourages signatories to join one or more actions in The Investor Agenda from: investment, corporate engagement, investor disclosure and policy advocacy.
31 March: PRI Reporting Framework completion deadline
Deadline for pilot investor climate reporting based on TCFD recommendations in the PRI Reporting Framework, enabling investors to publish a Climate Transparency Report. The PRI will provide aggregate analysis of pilot investor climate reporting responses by September to the FSB Task Force on Climate-related Financial Disclosures.
8-9 June: Canada host the G7
Climate and clean energy will be key themes. Canada has already worked with the UK in leading the Powering Past Coal Alliance, an effort for governments to phase out coal. The PRI will encourage governments to demonstrate more ambition on climate change.
12-14 September: PRI in Person and Global Climate Action Summit, California
PRI in Person will have a strong focus on low-carbon investment and active ownership, with investor climate action announcements welcome.
The Global Climate Action Summit will feature state, city-level, business and investor climate commitments and actions. The PRI is collaborating with the organisers.
24-30 September: Climate Week NYC will provide another opportunity to highlight action against the backdrop of the UN General Assembly.
12-14 October: Annual meetings of the World Bank and IMF hosted by Indonesia
Deforestation and coal are important areas for discussion, with the meeting bringing together finance ministers and central bank governors from 189 countries.
30 November-1 December: G20 Leaders Summit, Argentina
Priorities include technological changes and the future of work, infrastructure for development and sustainable food. The G20 will also look at sustainable finance, adaptation to climate change and energy transition.
3-14 December: COP24 (Paris Agreement meeting of parties), Poland
Governments need to agree and make decisions on implementing the Paris Agreement. A “facilitative dialogue” aims to support implementation of national plans.
What are the key focus areas for the PRI in 2018?
- Paris Agreement implementation: bringing the global investor voice to governments to encourage greater ambition. The PRI will use opportunities such as the G7, G20 and COP24 to drive home the message that investors want a safe climate to protect their portfolios and also need polices that enable low-carbon, green investments.
- California: supporting signatories in making low-carbon investments and in fossil fuel transition. The PRI will encourage and support investors to make commitments to be announced at California and through The Investor Agenda in collaboration with investor groups.
- Active ownership: enabling investor engagement with companies on transition. This will include ClimateAction100+ and the PRI-led engagement with the oil and gas sector, following on from our groundbreaking research with the Carbon Tracker Initiative ranking the highest capex and carbon projects, 2 degrees of separation.
- Driving implementation of the FSB Task Force (TCFD) recommendations. This will include asset owner guidance on TCFD recommendations including scenario analysis, company adoption of the recommendations, investor disclosure, and regulatory and stock exchange support for them.
- A PRI ten-year climate change strategy to better equip institutional investors to develop their own investment strategies embedding climate risk and opportunity. The PRI’s ten-year strategy will give signatories a clearer understanding of what is needed for a safe climate, their role within this and priority action areas for 2020 and beyond.
What role can the PRI Academic Network play?
Academic research has a key role to play in advancing investor and policy action on climate change, particularly in:
- Longer investment horizons. The authors of a recent paper, The Sustainability Footprint of Institutional Investors, find that portfolios of institutions with longer investment horizons exhibit higher sustainability, and risk-adjusted performance is positively related to sustainability, primarily through a reduction of portfolio risk. Academic research like this can help create a body of evidence for the need to for investors to incorporate longer-term risks such as climate change.
- Social transition. While much research is underway on stranded assets, less has been undertaken on “stranded communities” impacted by the transition to a low-carbon economy. The PRI will be starting a new research programme with the London School of Economics and Harvard Business School, focusing on social transition needed for a low carbon economy.
2018 will be a momentous year for climate action. The Paris Agreement still offers a glimmer of hope in protecting our planet and returns from a changing climate. The PRI looks forward to supporting investors in pressing governments to step up, and collaborating to develop global good practice in encouraging companies to transition, phase out of fossil fuels and in low carbon investment opportunities.