From UBS to Goldman Sachs, Major Investors Take a Stand for Climate Action

(Image: Goldman Sachs headquarters in Battery Park, New York. Goldman is just one of several major investors to take a public stance on climate change this past week.)

For the global economy to decarbonize quickly, there is no substitute for political leadership from the top. Nevertheless, investors and other financial stakeholders are positioned to hold the torch until national governments come up with a more aggressive position on climate change.

A group of more than 600 investors called for an end to fossil fuel subsidies during the COP25 climate talks in Madrid last week. The talks concluded in a shambles, but the pledge to act has continued to grow.

Investors are concerned about stranded fossil fuel assets

Though the world's two largest investors, BlackRock and Vanguard, are not part of the group of 600, it's still a financial powerhouse. UBS Asset Management and the California Public Employees’ Retirement System (CalPERS) are just two of the big-ticket investors on the roster. 

These investors clearly anticipate that stronger climate legislation is inevitable, and they want more clarity on the risks involved in clinging to fossil fuel investments. “One of the biggest worries for investors is the treatment of ‘stranded assets’, such as oil, coal and gas reserves, which could become unusable depending on climate legislation," reports Billy Nauman of The Financial Times.

A push for more disclosure 

As with many aspects of decarbonization, transparency is a key issue in the area of stranded assets. The group urges the adoption of risk disclosure platforms through the Task Force on Climate-related Financial Disclosures.

The Task Force is supported by Mark Carney of the Bank of England and is chaired by U.S. businessman and presidential candidate Michael Bloomberg. It aims to develop voluntary and “effective” financial disclosure platforms that provide investors, lenders, insurers, and other stakeholders with accurate information about the risks associated with climate change.

The work of the Task Force is also aligned with the organization Principles for Responsible Investment (PRI), a sustainable finance organization backed by the United Nations.

Financial stakeholders take a stand for climate action

The odds of avoiding catastrophic climate change are still good, if the pace of decarbonization picks up. However, accelerating the decarbonization trend means that nations will, eventually, adopt stronger climate policies. 

In what could be a harbinger of things to come, last week Reuters reported that Switzerland is considering legislation to pull the Swiss central bank—and its $800 billion in assets—out of fossil fuel companies.

That should be a warning sign. But Nathan Fabian, chief responsible investment officer for the PRI, told The Financial Times that only a few companies have positioned their assets to prepare for a more aggressive decarbonization timeline. For example, almost 2,600 firms have signed on to PRI’s guidelines, but Fabian estimates that only about 2 percent of them have prepared accordingly.

Still, there are signs that the collapse of the Madrid talks has galvanized the financial community.

On Monday, the shareholder advocacy group As You Sow filed a shareholder proposal with ExxonMobil and co-filed another one at Chevron, asking the companies to align with the Paris Agreement by decarbonizing their value chain, not simply by improving energy efficiency in their operations. Among other stakeholders, the filings were backed by the Church Commissioners for England, which manages the Church of England’s endowment fund.

In a press statement announcing the filings, As You Sow cited other financial stakeholders pressuring the two companies. That includes the organization Climate Action 100+, which represents 370 global investors with more than $35 trillion in assets.

Climate Action 100+ is coordinated by the Asia Investor Group on Climate Change, U.S.-based Ceres, the Australia-New Zeland Investor Group on Climate Change, and the Institutional Investors Group on Climate Change (IIGCC) in addition to PRI. And it includes the Church Commission and the New York State Common Retirement Fund among members.

In another interesting development, on Sunday the financial heavyweight Goldman Sachs announced a set of measures aimed at stepping up the decarbonization of its stake in the global economy.

As reported by CNN, that includes a 10-year, $750 billion funding commitment for projects that involve decarbonization and inclusive growth.

The bank also pledged not to finance drilling in the Arctic, including the Arctic National Wildlife Refuge in Alaska. It's also the first major American bank to rule out funding new thermal coal mining and coal power projects.

Look for more major announcements from leading financial institutions as we move into 2020.

Image credit: Thomas Dimson/Flickr