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Investors Worth $20 Trillion Discussed Climate Change Risks and Opportunities at the U.N.

Raz Godelnik
| Tuesday January 17th, 2012 | 0 Comments

Last week the U.N. had finally the chance to see a day of discussions on climate change, focusing on the risks and opportunities and leaving the politics out of it. About 450 global investors controlling more than $20 trillion gathered last Thursday at the United Nations for the Investor Summit on climate risk & energy solutions. Strangely, the summit took place only couple of miles far from Zuccotti Park, where investors and bankers became synonymous with villains, and yet here, at the U.N., they were the cheered for being a positive force, addressing the risks and opportunities presented by climate change.

The message of the summit was very clear – companies and investors need to address climate change and the sooner the better. Companies that don’t react to the signals climate change is generating are going to be irrelevant, explained Mark Vachon, VP for Ecomagination at GE. When it comes to investors, it’s essential and entirely feasible for them to climate-proof their portfolios, said Mindy Lubber, President of Ceres, one of the co-sponsors of the event. “Investors need diversified, sustainable strategies that maximize risk-adjusted returns in a volatile investment environment,” she added.

The feeling in the U.N. conference room was that the global investment community is finally getting it and becoming more aware of the financial implications of global warming on their portfolios. Kevin Parker, Global Head of Deutsche Asset Management, explained in his talk that the risk side is driving the focus of the investment community. Interestingly, when it comes to companies, the opportunities side is more dominant – more companies identify significant opportunities than risks from climate change according to the CDP 2010 Global 500 and S&P 500 report.

Another interesting difference between the attitudes of companies and investors that came up was regarding the fiduciary duty. Some boards of directors address climate change as a non-financial consideration and as such not part of their fiduciary duty.  On the other hand, a growing number of institutional investors, as you could hear over and over during the summit, believe that fiduciary duty requires investors to address climate change. “As fiduciaries, it is our job to make sure investors, businesses and policymakers are responding aggressively and creatively to the risks and opportunities associated with climate change and other sustainability issues,” Anne Stausboll, CEO of CalPERS, the nation’s largest public pension fund told the audience.

An important theme at the summit was the state of clean energy. Ethan Zindler of Bloomberg New Energy Finance presented a new research data that added to the general optimistic spirit in the room. He reported on a record $260 billion in total clean energy investment in 2011, up five percent from $247 billion in 2010 and five times the total attained only seven years ago. Highlights of the 2011 data include a 36 percent surge in total investment in solar power to $136.6 billion (wind power was second with $75 billion) and the US overtaking China for the first time since 2008 in total clean energy investment, mainly due to stimulus funding and other support initiatives such as a Treasury grant program. Most of these programs have already expired so there’s a good chance China will take back the lead next year.

Zindler mentioned that although the clean energy sector was booming in 2011, those who invested in this sector actually lost money. He mentioned that The NEX index, which tracks the performance of 97 clean energy shares worldwide, did very poorly compared to other indices and fell 40 percent in 2011. Investors, according to Zindler, became bearish mainly on solar and wind companies due to the pressure on manufacturers caused by over capacity, falling prices and growing competition from China. He added that as long as we have oversupply of solar and wind energy this sentiment would probably won’t change.

Although companies are the ones that eventually need to integrate climate change strategy into their core business, the summit was focused on the effort required first from the investors. After all, if investors are educated and believe that it is essential to take action now, that will result in substantial reductions in global greenhouse gas emissions, the road to change companies behavior gets shorter.

Therefore, the summit organizers made an effort to make sure that all of the attendees, including state treasurers, pension fund fiduciaries, asset managers, foundation leaders and corporate and financial executives will leave the summit as fully aware of the risks and opportunities presented by climate change as possible. One example was the excellent presentation by Prof. Rosina Bierbaum of the University of Michigan on the economic impacts of climate Change and resource scarcity. Other speakers also emphasized their reasons for becoming part of the SRI community. Roelfien Kuijpers, Managing Director and Global Head of DB Advisors at Deutsche Asset Management explained for example that she favors SRI: it is a good business, it creates jobs, it is her fiduciary duty and she also sees it as a demonstration of good citizenship.

While in the U.N. it was easy to stay optimistic listening to committed investors that spoke on addressing climate change as a win-win strategy, as well as to U.N. officials that emphasized the organization’s commitment to the issue (you can read more about it in Nick Aster’s reports from the World Future Energy Summit in Abu Dhabi). You also can’t ignore the impressive progress this summit has made from 2003 when Mindy Lubber was told to forget about it because investors won’t come to such as summit to 2012, where hundreds of investors show up and discuss climate change and clean energy.

Now it is left to be seen if investors will utilize the lessons learned in the summit and grow the SRI market exponentially as Lubber was hoping. I guess we’ll have to wait for the next summit to receive an answer.

Image credit: Ceres

Raz Godelnik is the co-founder of Eco-Libris, a green company working to green up the book industry in the digital age. He is an adjunct faculty at the University of Delaware’s Department of Business Administration, CUNY and the New School, teaching courses in green business and new product development.


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