By Jodi-Ann Wang, Senior Climate Policy Analyst, PRI, and Canadian Youth Delegate to G20 Indonesia 2022
Multilateral organisations and intergovernmental dialogue platforms, such as the G7, G20, and annual COPs, represent a critical mechanism for delivering a sustainable financial system and for taking climate action.
The G20 platform has evolved significantly since its conception. It used to focus on global financial stability, whereas today, representatives use it to forge dialogue and consensus on interconnected issues, such as the global energy transition, public health and development.
Throughout the year, as a Canadian youth delegate to the G20, I have negotiated on- and off-record to ensure G20 outcome statements are consistent with a sustainable and liveable planet. Alongside youth delegates from other G20 countries, our negotiations and consensus culminated in the delivery of the Y20 Communiqué, signed in July in Bandung, Indonesia.
In this article, I set out why it is important for investors to align their action on climate change with that of youth voices, and the long-term financial, environmental and social implications of not doing so.
Runaway climate change is costly for financial markets, and our livelihoods
With extreme weather events happening five times more frequently than fifty years ago, their direct economic cost has increased nearly eight times globally, seriously threatening the long-term performance of our economies, investors’ portfolios, and their beneficiaries. Such global challenges are intersectional and intergenerational, which means that youth and Y20 advocacy can play a key role in mobilising and delivering climate finance commitments.
Not only will the youth of today, and future generations, be disproportionately affected by the diminishing liveability of the planet, we are also inheriting a world that is inherently more expensive and offers fewer opportunities than that of our parents’ generation. Climate change aggravates existing inequalities, marginalisation and exclusion, and is a vulnerability multiplier.
The mass displacement of people and communities due to extreme weather events can also lead to social exclusion and the loss of cultural identities, with up to 216 million people potentially being forced to migrate by 2050.
The climate emergency not only threatens the enjoyment of all human rights, but also the right to life, with serious human rights abuses already becoming evident. A report by the UN’s Special Rapporteur on the promotion and protection of human rights in the context of climate change highlights the serious disconnect between those that continue to support the fossil fuel economy, and those that are most affected by the impacts of climate change.
This has implications for long-term investors, especially as global trends in regulation, litigation and social expectation represent significant risks for investors that fail to engage on climate-related social impacts in their portfolios. And as the severity of the climate crisis grows, it is becoming increasingly urgent for investors to address the physical climate risks that their portfolios are exposed to.
Investors’ environmental and social risk assessments are often siloed, which leads to them managing climate-related human rights impacts inadequately. This gap must be closed so that investors can adequately discharge their fiduciary duties in generating returns while considering the real-world outcomes across all investment activities.
A stable, robust policy environment is important to long-term investors, and to our planet
Net-zero targets now cover 90% of global GDP and over 160 financial institutions have committed to a 2050 net-zero target set by the finance sector. But what value do targets have if there is no plan to fulfil them?
An enabling policy environment is key to incentivising the flow of capital towards financing the net-zero transition across the globe. National climate action plans – substantiated with actionable, robust, and equitable policies – are equally important for youth as they can mitigate climate impacts and protect the best interests of future generations from the harm caused by climate change. On the flip side, the absence of a clear, consistent, and enabling policy environment can undermine investors’ (and civil society’s) confidence and exacerbate the risk of capital misallocation.
Case in point: the G20 has poured over US$3.3 trillion into fossil fuel subsidies since the Paris Agreement. Fossil fuel subsidies undermine efforts to mitigate (and adapt to) climate change against a dwindling global carbon budget. They are distortive, generating inefficiencies in the production and consumption of energy across economies, and skew capital allocation at the risk of lock-in and stranded assets at an enormous opportunity cost.
The current triple threat of energy security, the cost-of-living crisis, and the climate emergency, as well as ongoing geopolitical conflicts, should make it very clear that there is no place for new fossil fuel infrastructure in a world that wants to limit warming to 1.5°C.
What can investors do?
At this critical juncture, investors can:
1. read the policy proposals outlined in the Y20 Communiqué and amplify the voice of youth – elevating cooperation between youth and investors will strengthen our collective action;
2. engage in policy advocacy and sign the 2022 Global Investor Statement to Governments on the Climate Crisis, and join other investors calling for clear and ambitious policies that would mobilise the private capital required to effectively address climate change;
3. embed the just transition principles into investment decision making, by incorporating the social dimension into assessment, stakeholder engagement, capital allocation, and corporate and policy engagements. Ensure affected communities are not disproportionately marginalised in processes and outcomes, and that future generations are not dealt the burden of a carbon debt.
Youth are highly sensitive and disproportionately affected by the climate crisis and need governments and the private sector to go further and go faster. The voice of youth-led platforms like the Y20 can help investors to understand this, as we will not be able to talk about financial system stability or economic growth without a liveable planet. The planetary crisis transcends national boundaries, social groups, and economic sectors as a common concern for humankind.
Investors’ actions can either enable or constrain positive real-world outcomes for future generations. While bond maturities may range between one to 30 years, and the average shareholding lasts only months, the impact of investment decisions made today – be it in infrastructure, critical technologies, or fossil fuels – will be what future generations live with for decades to come.
The PRI blog aims to contribute to the debate around topical responsible investment issues. It is written by PRI staff members and occasionally guest contributors. Blog authors write in their individual capacity – posts do not necessarily represent a PRI view.