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$20 trillion Global Investor Coalition on Climate Change meeting in Hong Kong puts the spotlight on Asia’s contribution to climate change and on climate solutions

Investors from over 20 emerging and developed economies gathered for the first time last week to consider the risks and opportunities arising from climate change, and to develop further their collective efforts.
Hong Kong Jun 19, 2013

Investors from over 20 emerging and developed economies gathered for the first time last week to consider the risks and opportunities arising from climate change, and to develop further their collective efforts. The meeting - organised by the Asia Investor Group on Climate Change, with support from partners in the Global Investor Coalition on Climate Change - involved members of the four international climate change investor groups, representing over US$20 trillion assets under management.

Speaking on the final day, Assaad Razzouk, CEO of Sindicatum Sustainable Resources, based in Singapore, said: ‘Asia Pacific is set to roast the world. Analysis by the World Resources Institute shows that across the region there are 925 coal fired power stations commissioned or on the drawing board with average 50 year coal supply contracts. In one sweep, this is the formula for a 6 degree world. Investors in the region need to consider the implications of these projects and whether they will become stranded assets’.

Despite this, there was agreement that China’s national energy intensity targets may open up these investment opportunities on the mainland and could be a catalyst for similar targets elsewhere in the region.

Video keynote speakers, Ban Ki-moon, United Nations Secretary General; Al Gore, previous US Vice-President; Rachel Kyte, Senior World Bank VP and Christiana Figueres, Executive Secretary, the UN Framework Convention on Climate Change all stressed the essential role of the financial services industry in combating climate change and keeping average global temperatures at or near the internationally agreed 2 degree limit.

Announcing the establishment of the Low Carbon Investment Registry

At the Forum, the Global Investor Coalition announced a major new initiative - the development of a Low Carbon Investment Registry – the first global listing of low carbon investment case studies. The Registry allows investors to voluntarily record and showcase their low carbon investment activities and gives the public and policy-makers the chance to understand what investors are doing.  The Registry demonstrates the international collaboration on climate issues, between investors in developed and emerging markets and between public and private sector funds. Whilst there is great interest in when, why and how much investors allocate to low carbon assets, there is little visibility of what is happening and the Registry represents an important step forward in the sharing of this information.

(Further detail on the Low Carbon Investment Registry can be found in FAQs below)

Other take-outs from the Forum included:

Investment in Energy Efficiency a win-win

Michael Friedlander of Millennium Capital pointed to the substantial climate-investment win-win in energy efficiency, pointing out that this is the quickest way to delay the need for new build of coal plant or other types of energy supply. Dame Jennifer Shipley, former Prime Minister of New Zealand, concurred with this analysis citing the ‘Tomorrow Street’ campaign to show what can be achieved by companies that have sound supply and demand side strategies.

Shaun Kingsbury, CEO of the UK Green Investment Bank, explained some of the innovative funding solutions being undertaken by the Bank to take advantage of non-domestic energy efficiency opportunities - for example, collaboration with Aviva Investors to improve the performance of the National Health Service building stock.

Renewable Energy Advantage in Emerging Economies

Tom Murley of HgCapital, which released a report at the conference on the activities of European investors in clean energy, pointed to the advantage which emerging economies have in developing clean energy. ‘It’s easier and cheaper to install smart grids from the get-go, and take full advantage of the rapidly falling costs of renewable energy installations especially in the solar electric field’ he said.

Global Investor Coalition on Climate Change

The First Global Investor Forum, held in Hong Kong on 13th and 14th June was organised by the Asia Investor Group on Climate Change, with support from partners in the Global Investor Coalition on Climate Change. The coalition provides a global platform for dialogue between investors and governments on policy and investment practice related to climate change. It consists of the following: four regional climate change investor groups:

Institutional Investors Group on Climate Change (IIGCC) is a forum for collaboration on climate change for European investors. It provides investors with a collaborative platform to encourage public policies, investment practices, and corporate behavior that address long-term risks and opportunities associated with climate change. IIGCC currently has over 80 members, including some of the largest pension funds and asset managers in Europe, representing around €7.5trillion.

Investor Network on Climate Risk (INCR) supports more than 100 institutional investors with assets exceeding $11 trillion in addressing the financial risks and investment opportunities associated with climate change. INCR works with its members on climate-related investment practices, corporate engagement, corporate disclosure and policy issues. INCR is coordinated by Ceres, a US-based coalition of investors, environmental groups and other public interest organizations working with companies to address sustainability challenges including climate change and water scarcity.

Investor Group on Climate Change (IGCC) is a collaboration of Australian and New Zealand investors focusing on the impact that climate change has on the financial value of investments. The IGCC recognize that the financial return of an investment is impacted by climate change. As such, the IGCC aims to encourage government policies and investment practices that address the risks and opportunities of climate change, for the ultimate benefit of superannuants and unit holders.

Asia Investor Group on Climate Change (AIGCC) is a forum set up by the Association for Sustainable and Responsible Investment in Asia (ASrIA) to assist Asia’s investors to consider the risks and opportunities associated with climate change and low carbon investing. AIGCC provides capacity for investors to share best practice and to collaborate on investment activity, credit analysis, risk management, engagement and policy. AIGCC is an initiative of ASrIA, the Association for Sustainable & Responsible Investment in Asia.

Further enquiries:
Jessica Robinson
TEL          +852 3105 3703

Frequently Asked Questions

1.     What is the Low Carbon Investment Registry?

The investor groups realise that to meet the challenge of climate change, we must increase the allocation of capital to low carbon assets. To achieve this objective, government policies and investment practices must work hand in hand.

To governments and to those outside the investment sector, the internal workings of institutional investment can be difficult to understand. There is great interest in when, why and how much investors allocate to low carbon assets, but there is little visibility of what is happening.

To make it easier for policy makers, stakeholders and the investment industry to determine why and when institutional investors allocate funds to low carbon assets, and to showcase the low carbon investments that are already being made, the Global Investor Coalition will produce a Low Carbon Investment Registry to record and publish the low carbon investments of institutional investors.

The Registry will be voluntary, capturing examples of low carbon and climate change adaptation investments undertaken.

Should the additional reporting prove useful to stakeholders and the investment sector, investors will be encouraged to delve more deeply into their portfolios to decipher and report when their capital serves a low carbon or climate change adaptation purpose.

The Registry will be open to institutional investors from around the world, with participants in the recent Global Investor Survey on Climate Change contributing the first entries. The investor groups will publicly launch the Registry in early 2014.

A working definition of low carbon investment will be provided for guidance and will be regularly reviewed based on the entries in the register. We encourage investors to use this tool to send a clear message that the importance of increasing capital allocations to low carbon assets is both understood and underway.  Better communicating low carbon investment successes will encourage governments to provide the stronger policy signals that investors need to increase their low carbon capital allocations.

(For further information, contact Nathan Fabian +61 292550290, Sydney)

2.     Are investors considering climate change an investment risk and opportunity?

The Forum highlighted how financial institutions are showing leadership, incorporating climate risk and low carbon investing into asset allocation and their underlying investment processes.

Ian Simm, Chief Executive Impax Asset Management, noted that climate change and related issues are already impacting the economy.  He said it was still the exception for asset owners to factor climate change-related risks and opportunities into their decisions either in portfolio construction or via the mandates they give to their asset managers.

However, Helga Birgden, Head of Responsible Investment Asia Pacific for Mercer, said a significant number of pension clients have started to consider climate risk in their asset allocation processes. She added: ‘The key to doing this effectively is to make it part of your mainstream investment process rather than a separate activity. The ‘Climate Change Scenarios – Implications for Strategic Asset Allocation’ study which we published in 2011 provides a tool and process for investors to take a risk management approach and review existing holdings; hedge against climate impacts; consider where opportunities are and make new allocations, and engage with companies.’

Donald MacDonald, Trustee Director for the UK BT Pension Scheme, agreed, noting that his fund made use of the Mercer study and employed Legal & General to invest in a carbon content optimized tracker fund.  He explained that BTPS had been closed to new members for 10 years but is still the largest corporate fund in the UK and expects to be paying pensions for a further 60 years.  The question he has is what assets will match this liability?  Climate risk is not going away and impacts this question.

3.     What is the scale of the risk and opportunity?

According to Rintaro Tamaki, Deputy Secretary General OECD, an estimated US$ 3 trillion is needed each year for infrastructure investment, while currently only about US$ 1 trillion is invested.  Fossil fuel subsidies are distorting the issue and are a major drain on the public purse. Removing distorting and inefficient fossil fuel subsidies can be a triple win solution, improving the economics of clean energy, providing fiscal consolidation benefits, and reducing greenhouse gas emissions. If it is done in a smart way, it can also free up scarce government funds to more directly tackle social priorities, like poverty alleviation. Support for fossil fuel production and consumption in advanced economies are estimated by the OECD to amount to between US$ 55 to 90 billion per year, while the International Energy Agency estimates that consumption subsidies in  emerging and developing economies represent about US$ 523 billion per year.

4.     How can investors respond when there is so much policy uncertainty?

Several speakers pointed to the fact that investors are used to dealing with uncertainty, as this is the very nature of the investment business.  Therefore, despite insufficient policy support and continuing economic difficulties in many countries arising from the credit crunch, investors and financial institutions are moving to support low carbon developments and improving their ability to manage climate change within regular investment analysis.  However, there is general consensus that deals are more attractive when there is clear support for them from governments and local investors.  This is especially true in emerging economies.

Vikram Widge, Head of Climate Finance and Policy at IFC, noted that while policy uncertainty is one of the biggest barriers to private sector investment, multilateral development banks such as IFC may be able to help with their trusted due diligence processes, and their respected governance and performance track record. With some credit enhancement they could help make climate friendly opportunities investment grade, and provide a basis for private investors to have the confidence to invest.

Dr Irfa Ampri, Vice Chairman Fiscal Policy Agency for Climate Change Finance and Multilateral Policy at the Indonesian Ministry of Finance, agreed noting that IFC played a key role in assisting project developers improve governance, thereby increasing the attractiveness of projects to private sector investors.

5.     Why are investors so silent when they have such influence?

The forum also discussed how investors can be more proactive, given that investors can be a significant positive influence on the climate policies of investee companies and send a powerful message to governments about the types of policies and ambitious global agreements needed to increase investment in the low carbon economy. Bill McGrew of CalPERS explained their policy of actively engaging corporate management on climate change issues and voting the shares it owns as part of its Global Principles of Accountable Corporate Governance.  He noted that more work needed to be done with the Asset Managers which it employs to make sure they are all briefed on CalPERS climate policies and communicate CalPERS concerns, and ask the right questions of company management.

Donald MacDonald said that his fund has collaborated with other funds on public policy engagement, as the only way to be more effective.  The Australian funds also collaborate on engagement.  In the US there are a variety of tactics, some such as Blackrock going it alone, behind closed doors, and others filing shareholder resolutions.

About 45% of the climate proposals are withdrawn after the company agrees to take action.  Another example is CalSTRS which wrote to 100 companies on their energy efficiency performance and targets – most responded very constructively, only six went to a shareholder resolution.

By contrast in Asia, Andrew Brandler, CEO of utility CLP, noted that their climate policies had not been influenced by institutional investors and they had not felt any significant pressure about climate change from the investment industry.  Their greatest concerns had been the ‘license to operate’ and the threat of regulation.

With regard to engagement with governments, Dame Jennifer Shipley, former Prime Minister of New Zealand and member of the Club of Madrid Task Force on Climate Change, noted that cultivating public willingness to accept effective policies is essential.  ’In the end politicians more often follow than lead.  All of us have a responsibility to help create the right political climate where frameworks and incentives that will win public and industry leaders support for low-carbon living are accepted as mainstream and the right thing to do’ she said, adding ‘what’s more we have to move fast, and market based policies are more durable than ones which involve subsidies or other short term measures unless they are part of a sound medium term strategy that is well understood by all.’

The three longest running climate investor groups, INCR, IIGCC and IGCC have all engaged on public policy matters, INCR primarily with the US Securities and Exchange Commission and IIGCC with the European Commission on the EU Trading Scheme.   The Global Investor Coalition would like to thank its kind sponsors. Without their support, the first Global Investor Forum on Climate Change would not have been possible.






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