Governments given guide to low-carbon investing

Some of the world’s largest investors have set out a list of demands on how governments and companies should move ‘beyond disclosure’ in their response to climate change, with a document that claims for the first time to establish a ‘unified global investor voice’ on the issue.

The policy document, entitled Financing the Transition to the Low-Carbon Economy, lays down several steps investors expect companies to take to maximise the opportunities presented by climate change and climate policy. These cover governance, strategy, goals, implementation, measurement, disclosure and public policy.

Devised by investors representing over $20tn in assets, the document is intended to help policymakers understand the factors that institutional investors consider when investing, including what the latter see as ‘investment-grade’ climate change and clean energy policy.

Suggestions for government to attract private investment are clear-cut, with a stringency that may exclude many countries based on current performance. They include:

  the setting of clear short-, medium- and long-term, legally-binding CO2 emission reduction objectives, with mechanisms and timelines for their implementation;
  continued efforts to establish an internationally-binding treaty;
  transparency about policy design and implementation; and
  financial incentives that shift the risk reward balance in favour of low-carbon assets.

Companies will be expected to follow proposed regulation, as well as following similar guidelines on transparency, concrete targets and robust implementation.

Specifically, the document emphasises the importance of ‘duration’ of climate change policies, and investors’ need for long-term policy certainty — policies shorter than the timeframe over which investments are expected to repay capital will see investors tending to take their money elsewhere.

The investors say the document is of particular importance for carbon-intensive industries and companies without CO2 reduction targets or a climate change policy, which clearly represent the highest risk for investors.

Co-ordinated by the US-based Investor Network on Climate Risk, the European Institutional Investors Group on Climate Change and the Investors Group on Climate Change in Australia & New Zealand, the statement also gives a country-by-country account of the current achievements and shortcoming, of half-a-dozen key governments.

Craig Mackenzie, head of sustainability at Scottish Widows Investment Partnership and one of the statement authors, said: “This statement aims to ensure companies are left in no doubt exactly what investors expect of them on climate change.

“Leading companies have told us that systematic energy efficiency measures enable them to reduce emissions and increase profits at the same time. These guidelines spread this message, and help us identify and engage with companies which appear to be lagging behind.

“By taking action now, we will protect shareholder value today, while helping mitigate the profoundly negative consequences severe climate change poses for the global economy in the future.”