Investor survey: Appetite for climate investment accelerating, diversifying and driving engagement with companiesDownload
Investor appetite for climate investment opportunities continues to grow and investment activity is accelerating, even as regulatory uncertainty threatens future growth in Australia, according to a new survey of institutional investors released today by the Investor Group on Climate Change (IGCC).
Set out in a new report – Accelerating Change – institutional investors have provided new insights into how they are approaching low carbon and green investment opportunities and where they are active by market and asset class. The survey was undertaken over the June to July period in 2019, with investors managing more than $1.3 trillion in assets responding to questions on their approach to climate investment.
“Despite recent political upheavals, investors in Australia and New Zealand are focused on finding low carbon opportunities and getting deals done”, said Emma Herd, Chief Executive Officer of the Investor Group on Climate Change.
“Climate-aligned investment is continuing to accelerate. Investors are actively looking for opportunities to support climate solutions and embed climate change into whole of portfolio management”.
Key findings from the survey include:
- 90% of the investors surveyed are implementing low carbon strategies.
- 50-80% of investors surveyed are undertaking or are actively considering low carbon investment across most asset classes
- More than 70% of investors have or are considering climate-aligned targets for their portfolios. Many are also doing the same across a range of asset classes.
- When faced with policy uncertainty, more than 40% of investors redirect investments to jurisdictions, sectors or markets with less uncertainty, and nearly 60% increase company engagement to manage climate-risks across their portfolios.
- Over 80% of investors are actively considering reporting under the Taskforce on Climate-related Financial Disclosures.
“The search for climate opportunity is moving into more asset classes. Diversification is a key theme, with investors allocating capital across a broad range of classes including listed equities, private equity, fixed income, infrastructure, timber, forestry and agriculture, and real estate”.
“Perceived barriers to climate investment have evolved in response to increased investor activity. Lack of investable deals at scale and policy uncertainty remain major barriers to increased investment”.
“When faced with increased policy or regulatory uncertainty in key markets, investors go offshore to find climate investment opportunities, and they ratchet up active engagement with companies they own”.
“Recent company engagement by investors with companies, such as Glencore, Rio Tinto, BHP Billiton, Shell and BP, are beginning to build the resilience to companies and the investors who own them have to growing climate-related risks. In the absence of clear policies to achieve net zero emissions in line with the Paris Agreement investors are likely to increase company engagement to reduce their exposure to an uncoordinated and ad hoc policy response.”
“The widespread adoption of the final recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) by investors is impacting the investor practice, through increased target setting and public commitments”.
The emergence of the Australian Sustainable Finance Initiative in Australia and the Sustainable Finance Forum in New Zealand, will likely accelerate this trend of mainstreaming climate change into investor practice.
The report sets out a number of recent examples of institutional investors are setting targets, developing products and reporting on the outcomes of their climate change investment strategies.
“IGCC will continue to support growing appetite among institutional investors for climate-aligned investments, and to work with our members to develop investable solutions to facilitate the transition to a resilient, net zero emissions economy,” Herd said.
477 investors with USD $34 trillion in assets urge G20 leaders to keep global temperature rise to 1.5 degrees CelsiusDownload
Amundi, Axa, California State Teachers’ Retirement System (CalSTRS), Legal & General Investment Management, Natixis Investment Managers, Mitsubishi UFJ Financial Group, and Sumitomo Mitsui Asset Management, among a record number of signatories to the Global Investor Statement to Governments on Climate Change.
JUNE 26, 2019, OSAKA: Investors from around the globe are urging world government leaders to step up ambition on climate change and enact strong policies by 2020 to achieve the goals of the Paris Agreement, including phasing out thermal coal power and pricing carbon. 477 investors with $34 trillion (USD) in assets, a record number of signatories, are behind the urgent call-to-action to limit average global temperature rise to no more than 1.5 degrees Celsius.
“As institutional investors with millions of beneficiaries around the world, we reiterate our full support for the Paris Agreement and strongly urge all governments to implement the actions that are needed to achieve the goals of the Agreement, with the utmost urgency,” the investors wrote in a Global Investor Statement to Governments on Climate Change.
The statement comes as world government leaders gather at the Group of Twenty (G20) Summit in Osaka, Japan and as the United Nations Secretary-General António Guterres calls on “countries to build no new coal power plants after 2020.”
“Climate change affects all sectors of the economy and all countries,” said Christiana Figueres, Convener of Mission 2020 and former Executive Secretary of the United Nations Framework Convention on Climate Change (UNFCCC). “It is the biggest and most urgent challenge currently facing the world. As we face a true climate emergency, limiting temperature increase to 1.5 degrees Celsius is necessary for survival, and achievable!”
Figueres added, “Investors have a vital role to play in providing the trillions in capital required to support the transition to a low-carbon and climate-resilient future. It is therefore hugely encouraging to see so many investors unite around such a clear and powerful statement to governments. They are showing a sentiment shared across the global community: exponential scale-up and acceleration of climate action is not a choice but a requirement, and represents our best opportunities for financial stability and economic prosperity.”
“As an investor in global markets, we are exposed to the increasing risks and opportunities that climate change presents to our portfolios, especially in Asia where the physical impacts of extreme weather events will be the harshest and of the greatest cost,” said Seiji Kawazoe, Senior Stewardship Officer, Sumitomo Mitsui Trust Asset Management. “To enable us to effectively invest in the necessary transition to net-zero carbon economies around the world, we have signed this statement to urge governments to take the actions needed to set us on the course to limiting global warming to 1.5 degrees Celsius.”
In particular, investors are asking world government leaders to:
Achieve the Paris Agreement’s goals
- Update and strengthen nationally-determined contributions to meet the emissions reduction goal of the Paris Agreement, starting the process now and completing it no later than 2020, and focusing swiftly on implementation
- Formulate and communicate long-term emission reduction strategies
- Align all climate- related policy frameworks holistically with the goals of the Paris Agreement
- Support a just transition to a low carbon economy.
Accelerate private sector investment into the low carbon transition
- Incorporate Paris-aligned climate scenarios into all relevant policy frameworks and energy transition pathways
- Phase out thermal coal power worldwide by set deadlines.
- Put a meaningful price on carbon
- Phase out fossil fuel subsidies by set deadlines
Commit to improve climate-related financial reporting
- Publicly support the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) recommendations and the extension of its term
- Commit to implement the TCFD recommendations in their jurisdictions, no later than 2020
- Request the FSB incorporate the TCFD recommendations into its guidelines
- Request international standard-setting bodies incorporate the TCFD recommendations into their standards.
“As shareholders, we are engaging with companies about their emissions, and how their Boards and their business plans are preparing them for a carbon constrained future,” said the California State Teachers’ Retirement System (CalSTRS) CEO Jack Ehnes. “We need the governments of the world to implement the Paris Agreement and regulate emissions on a clear timeline so that businesses know what the interim targets are and the timeline for their action.”
“Renewables are the cheapest energy source across more than two-thirds of the world today. The direction of travel is clear: the economics of wind and solar will continue improving,” adds Carola van Lamoen, Head of Active Ownership, Robeco, a global asset manager with $203 billion in assets under management. “Renewables are expected to outcompete new coal-fired power plants by 2030 almost everywhere. As investors, in our view the development of new coal power plants after 2020 puts at risk both the return on investment and the world’s chance of limiting global warming in line with the goals of the Paris Agreement.”
“As one of Australia’s largest industry superannuation funds, and a major institutional investor, we believe we have an important role to play in bringing about positive action on climate change to protect the retirement savings of our members,” said Deanne Stewart, Chief Executive Officer, First State Super. “This aligns with the view of regulators in Australia, and internationally, who have identified climate change as a significant material and foreseeable risk and have called for immediate action. While we are responding on behalf of our members, this issue will require a coordinated, collective and collaborate response from governments, business and investors to ensure that critical changes are made now for the long-term interests of our members and the community.”
The Investor Agenda Founding Partners strongly welcomed the Intergovernmental Panel on Climate Change’s (IPCC) Special Report on 1.5 degrees Celsius which emphasised the urgency for average annual sustainable energy investments of up to USD $830 billion to transition to a zero-carbon and climate resilient global economy. The report also said that in order to achieve a 1.5 degree Celsius pathway, global net emissions need to decline by 45 percent by 2030 and reach net zero emissions around 2050.
Investors: Victoria’s emissions reductions targets in line with global market trend to net zero emissionsDownload
Recommendations on 2030 emissions reduction targets for Victoria released today by the Independent Expert Panel’s report on Interim Emissions Reduction Targets (2021-2030) are in line with market trends as the world moves towards a net zero emissions economy and should deliver greater investment certainty, say investors.
“Global markets are shifting to low carbon options and investors are increasingly aligning investment decisions around zero carbon strategies,” said Emma Herd, CEO of the Investor Group on Climate Change. “If Victoria Implements credible 2025 and 2030 emissions reductions targets this would be a positive market signal to investors in Australia and around the world and should unlock investment opportunities.”
The Investor Group on Climate Change (IGCC) is a collaboration of Australian and New Zealand investors focused on the impact that climate change has on the financial value of investments. The IGCC represents institutional investors with total funds under management of over $2 trillion and which cover over 7.5 million people in Australia and New Zealand.
“Credible targets aligned with the objectives of the Paris Agreement provide the private with greater certainty on the rate and pace of change ahead. Emission targets also allow for better transition planning for impacted communities and this can support new investment in these regions.”
“Delaying action means investors will take a wait and see approach and look to invest elsewhere.”
“Globally, there remains a significant gap between the action governments are currently taking and the objectives of the Paris Agreement. This is of great concern for investors, as global warming above 1.5-2°C would have large and detrimental impacts on the economy, community and investment portfolios.”
“To deliver investor confidence, governments must deliver credible and durable policy support for a net zero emissions and climate resilient economy. Ultimately, Australia needs a national approach to climate change which is aligned with the objectives of the Paris Agreement. Investors will work with all governments to pursue a policy response that deliver a prosperous economy,” Ms Herd said.
The Investor Group on Climate Change looks forward to participating in further consultation with the Government of Victoria.
Read the full Media Release
The Australian Climate Roundtable has met to reaffirm its commitment to foster common ground on the vital issue of climate change and energy transition. Members affirmed the Roundtable’s joint principles for climate policy. They also welcomed the National Farmers’ Federation to the group – adding the land sector to the breadth of industry, business, community, union and environment groups represented.
The Australian Climate Roundtable includes the Australian Aluminium Council, the Australian Conservation Foundation, the Australian Council of Social Service, the Australian Council of Trade Unions, the Australian Energy Council, the Australian Industry Group, the Business Council of Australia, the Investor Group on Climate Change, the National Farmers’ Federation and WWF-Australia.
Our organisations remain concerned about the effects of climate change and agree on the continuing importance to Australia’s prosperity, environment and social cohesion of a fair, just, effective and efficient response to climate change. These are issues for public policy to address over the next three years and beyond. There is no way through this debate other than by finding common ground.
We will work together to that end and provide input to governments in due course.The Australian Climate Roundtable’s joint principles for climate policy are at www.
The report released today by the Climate Council Compound Costs: How Climate Change is Damaging Australia’s Economy, reveals the tip of the iceberg in the real estimated cost of climate change to the Australian economy, says the Investor Group on Climate Change.
“Climate change represents a major threat to Australia’s financial stability,” said Emma Herd, CEO of the Investor Group on Climate Change. “The physical impacts of climate change put the retirement savings, the homes and livelihoods of many Australians at risk. These are the real costs of climate change.”
“Institutional investors need to understand the economic costs of climate change, their timing, and where capital can best be placed to mitigate them. Governments should commit to build on the Climate Council’s work today so we better understand the full challenge in front of us.”
Australia is already paying the rising costs of extreme weather events with the 1 degree of warming experienced globally to date. Current global policies put the world on track for 3-4 degrees warming, and will increase these costs exponentially. The detailed new modelling in the Climate Council’s report estimates the costs to Australia’s property and infrastructure sector in particular as significant, with costs to property at $571bn by 2030, rendering 1 in 19 of these properties effectively uninsurable.
Extreme weather events will also have impacts on Australia’s agriculture sector and food security, reducing yields and effecting Australia’s GDP. Accumulated loss of wealth due to reduced agricultural and labour productivity as a result of climate change is estimated to exceed $19 billion by 2030, $211 billion by 2050 and $4 trillion by 2100.
“Institutional investors invest across the economy for the long-term and are exposed to the growing impact of climate change on the companies, industries, property and infrastructure assets they own.”
“Investors are developing tools and frameworks to assess and manage physical climate risk at both the portfolio and the asset level and more needs to be done.”
“Governments have a clear role in helping overcome the barriers to investing in and supporting more resilient communities and economies.”
“Critical first steps to building resilience to the impacts of climate change include funding for climate science, coordination and clear accountabilities among the various levels of government on adaptation, and up-to-date national assessments of infrastructure, sectors and regions at risk to the effects of climate change.”
“Ultimately adaptation to the impacts of climate change has limits and emissions causing the damage in the first place need to be reduced. To avoid the worst impacts of climate change this means delivering the objectives of the Paris Agreement and achieving net zero emissions by 2050,” said Herd.
You can find more on IGCC’s Policies for a Resilient Net Zero Emissions Economy and the barriers and opportunities for investing in adaptation, From Risk to Return: Investing in Climate Change Adaptation here: igcc.org.au/publications/
New Zealand’s Zero Carbon Bill is a step towards a prosperous zero carbon economy the Investor Group on Climate Change said today.
“Climate change represents a systemic risk to the financial system and economy,” Emma Herd, CEO of the Investor Group on Climate Change said. “The Zero Carbon Bill is a crucial step towards establishing a robust road map for New Zealand to unlock investment in the zero carbon economy.”
The Investor Group on Climate Change (IGCC) is a collaboration of Australian and New Zealand investors focused on the impact that climate change has on the financial value of investments. The IGCC represents institutional investors with total funds under management of over $2 trillion and cover over 7.5 million people in Australia and New Zealand.
“The setting of ambitious, long-term emissions reduction targets aligned to 1.5°C and predictable governance frameworks are crucial for both investor confidence and ensuring a carefully planned transition to a zero carbon economy.”
“IGCC supports the setting of a net zero greenhouse gas emissions target for 2050, that covers all types of greenhouse gas emissions and all sectors of the New Zealand economy.”
“New Zealand’s international commitments cover all emissions and the government should seek through time to be consistent across both its domestic and international commitments to avoid investment uncertainty.”
“A strong focus on adaptation and resilience to the physical effects of climate change is also critical for ensuring New Zealand’s long term prosperity.”
“Sustainable finance in the agricultural sector is growing globally and with the right investment signals the government can facilitate further investments from pension funds.”
“Under the Paris Agreement, the international community is increasingly focused on scaling up national ambition and unlocking zero carbon finance. The UN Secretary General’s climate summit in September offers a great opportunity for New Zealand to build on the Zero Carbon Bill and join other countries in updating its 2030 emissions target to be in line with limiting global warming to 1.5-2°C.”
“The Zero Carbon Bill offers investors a foundation to unlock finance in zero carbon solutions. Investors look forward to working with the government to deliver a resilient and prosperous economy,” Herd said.
The Climate Change Action Plan announced today by Labor would be a critical first step to managing the substantial financial risks of climate change and unlocking billions of dollars of new investment, the Investor Group on Climate Change (IGCC) said today.
“If implemented, the ALP’s climate policy would provide a credible foundation to manage the risks of climate change and deliver capital towards a resilient and prosperous economy,” said Emma Herd, Chief Executive Officer, IGCC. “The policy could unlock multi-billion dollar investment in climate change solutions”.
IGCC represents institutional investors with total funds under management of over $2 trillion and its members cover over 7.5 million superannuation holders in Australia and New Zealand.
“Implementing a more credible 45% reduction in emissions by 2030 and net zero emissions by 2050 would be a positive signal to investors in Australia and around the world. Credible targets aligned with the objectives of the Paris Agreement provide the private sector with greater certainty as to the rate and pace of change ahead.”
“A clear pathway to net zero emissions will improve investors’ ability to assess climate-related risks and opportunities and boost zero carbon investment.”
“After decades of delay, business and government need to work together to implement a practical response to significantly reducing emissions across the economy.”
“Ongoing scare campaigns instead of credible action don’t address the reality that global markets are shifting towards zero emissions. To deliver investor confidence, Australian governments must develop credible and durable policy support for a net zero emissions and climate resilient economy.”
Last week, IGCC released Policies for a resilient net zero emissions economy that sets out what institutional investors see as the key policy priorities for the Australian Government over the period 2019 to 2022. Labor’s Climate Change Action Plan captures key elements of this policy, including aligning national strategies to the long-term objectives of the Paris Agreement, boosting the Safeguard Mechanism and implementing policies to ensure a managed transition to zero emissions in the energy sector.
“Climate change is a systemic risk to investment returns, financial stability, communities and the economy.”
“A robust national climate change adaptation policy remains a key gap in the policy announcements of both major parties today.”
“The ALP’s proposal to implement triennial climate change risk assessments is an important foundation to build upon towards a comprehensive national adaptation strategy to manage the cost of growing climate impacts.”
“Investors will work with governments, the companies they invest in and industry groups to pursue a policy response that delivers a prosperous net zero emissions economy,” Ms Herd concluded.
Aligning policies to achieve net zero emissions, managing the energy sector transition and building resilience to growing climate change impacts must be top priorities for Australia and New Zealand governments, the Investor Group on Climate Change (IGCC) said today.
IGCC represents institutional investors with total funds under management of over $2 trillion and its members cover over 7.5 million superannuation holders in Australia and New Zealand.
“We know that climate change is a systematic risk to investment returns, financial stability, communities and the economy,” said Emma Herd, CEO, IGCC. “The decisions we make today will have a material impact on the retirement savings of millions of Australians and New Zealanders.”
“Institutional investors are investing in zero carbon solutions and engaging with companies they invest in to ask them to do the same. Financial regulators expect industry to be managing for climate risks. Governments now need to do their part in delivering a net zero emissions and resilient economy.”
Policies for a resilient net zero emissions economy sets out what institutional investors see as the key policy priorities for the Australian and New Zealand governments over the period 2019 to 2022 (see infographic below for more details):
- Pathways to a net zero emissions economy: national emissions and economic strategies aligned to the Paris Agreement, durable policy frameworks and carbon pricing.
- A managed energy sector transition: the credible integration of climate change and energy policy, using public sector finance to crowd in private sector investment, and a policy for a just transition in the energy system.
- Building resilient communities and economies: national climate change adaptation strategies and strengthened climate-related disclosure requirements for companies and investors.
“The policies investors have outlined today are critical first steps to managing the substantial risks of climate change. They will also unlock multi-billion dollar investments in economic revitalisation and zero carbon modernisation.”
“Investors will work with governments to pursue a policy response that delivers a prosperous economy. To deliver investor confidence, governments must deliver credible and durable policy support for a net zero emissions and climate resilient economy,” Ms Herd said.
Today’s release of Rio Tinto’s report Our Approach to Climate Change is another important outcome from the global investor engagement project Climate Action 100+.
This is the first report Rio Tinto have released on the impacts of climate change following the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD). Rio Tinto acknowledge that, as the first fossil fuel-free mining company, they are actively positioning for a low carbon future.
This announcement follows the recent commitment by Glencore and similar announcements by Shell, BP and Maersk who are all working with global investors to build practical climate change roadmaps, align their business strategies with the goals of the Paris Agreement and report transparently to market.
“Investor-led engagement with companies through the Climate Action 100+ is designed to achieve effective climate change outcomes in the best interests of the Australian economy and shareholder returns”, said Emma Herd, CEO of the Investor Group on Climate Change and member of the global Steering Committee for the Climate Action 100+.
“This is part of a global investor push to increase company disclosure on climate-related financial impacts and address systemic climate change risks.”
Engagement with Rio Tinto was co-led by AustralianSuper and CCLA.
Andrew Gray, Director ESG & Stewardship, AustralianSuper and Member, Climate Action 100+, said “Last year Rio Tinto supported the recommendations of the TCFD and we welcome their first report under this structure. 2018 saw the company undertake technological breakthroughs in materials that have a key role in the low carbon transition. We are also encouraged that Rio Tinto has joined the Energy Transitions Commission which takes a multi-sector approach to hard-to-abate sectors like steel”.
“Investors are stepping up their actions as part of a growing concern regarding the financial implications of climate change and to ensure that investments deliver in the long-term interests of super fund members, ” said Ms Herd. “We look forward to further engagement with Rio Tinto and with other companies through the Climate Action 100+.”
Read the full Media Release.
The public statement from Rio Tinto is here.
The full report from Rio Tinto is available here.
In response to the government’s climate policy announcement, institutional investors today warned that more of the same will not address growing climate and transition risk to the Australian economy.
“The government’s policy announcement today largely represents a business as usual announcement,” said Emma Herd, CEO of the Investor Group on Climate Change. “Business as usual will not address the risks to the Australian economy that climate change represents nor will it unlock large-scale investment in zero emissions solutions.”
“In the electricity sector alone, over $1.3 billion dollars of investment is needed each and every year over the next 20 years to achieve emissions reductions in line with the Paris Agreement.* Limited government funds will not unlock this, credible and durable energy and climate policy can.”
Investors are engaging with companies and governments around the world to ensure policies and practices are consistent with the goals of the Paris Agreement.
“The deadline for Australia to update its 2030 targets in line with net zero emissions and limit global warming to 1.5-2°C under the Paris Agreement, is fast approaching. Australia’s climate policies must be scalable, and able to meet deeper emissions commitments through time. Capped government funds have limited flexibility.”
“There is a significant gap between the government’s current target and the objectives of the Paris Agreement. This is of great concern for investors, as global warming above 1.5-2°C would have large and detrimental impacts on global economies, society and investment portfolios.”
“The Australian government needs to close the gap between its long-term Paris commitments and its current target and policies urgently.”
“The government’s support for investigation into stronger network connection with Tasmania and large-scale energy storage is important. This work should be undertaken in the context of the energy market operator’s Integrated System Plan and embedded within a strategy to achieve net zero emissions in the electricity sector.”
“Investors are stepping up their action as part of a growing concern regarding systemic climate change risks and to ensure that investments deliver in the long-term interests of super fund members. Investors will continue to urge governments to implement policies to achieve a smooth and fair transition to a resilient net zero emissions economy,” Ms Herd said.
* Based on fast change scenario in the Australian Energy Market Operator’s Integrated System Plan.
Investor Group on Climate Change > Media Release