Investor warning: it’s time to look beyond mere carbon disclosure

The Institutional Investors’ Group on Climate Change is looking to build real momentum on changing how companies factor in climate change risks to their business operations. Its chief executive Stephanie Pfeiffer talks to Mike Scott

Last month, a coalition of investor groups focused on tackling climate change issued a set of guidelines for how companies should deal with the issue.

The guidelines are “a call from investors for companies to go beyond disclosure [of their carbon emissions] and step up action to minimise the risks and maximise the opportunities presented by climate change and climate policy”. So says Stephanie Pfeiffer, chief executive of the Institutional Investors’ Group on Climate Change (IIGCC), a London-based forum for more than 75 European investors with assets under management of around €7.5tn in seven European countries.

“The recent climate change talks in Durban demonstrated that there is now a global determination at a political level to move towards a low carbon economy.

“It is, therefore, more important than ever for investors and companies to ensure they are well-placed to identify and act upon climate change risks and opportunities,” she said.

The guidance, released in conjunction with the US-based Investor Network on Climate Risk (INCR) and the Investors Group on Climate Change (IGCC) in Australia and New Zealand, outlines seven steps investors expect companies to take in the areas of governance, strategy, goals, how those goals are implemented, how they are measured, disclosure of greenhouse gas emissions and engagement in the public policy-making process.

The IIGCC was created ten years ago to give institutional investors a strong voice on climate change and a platform from which to engage with policy makers, companies and other stakeholders, Pfeiffer explains.

“It allows our members to demonstrate that they have committed to dealing with climate change, to raise their own awareness on the issue and to see what others are doing. It is a forum that allows them to focus just on climate change – there are not many other opportunities to do that.”

Such engagement is necessary, she adds, because institutions have fiduciary duties that mean they have to achieve sufficient returns for their members.

“Many are invested elsewhere and if you want to shift those investments, you have to shift the risk/reward balance in favour of dealing with climate change.”

While there are some areas where it already makes sense for companies to take action without policy changes, such as on improving energy efficiency, there are other areas where policy changes are required.

“When it comes to incentives to invest in clean energy through government support schemes and by cutting subsidies for fossil fuels, investors need to engage with policy makers,” Pfeiffer points out.

On a more general note, the IIGCC wants to see policies of an appropriate duration because energy infrastructure and investment has such a long-term focus.

It also urges politicians to avoid retroactively making changes because it damages investor confidence. “We are looking for transparency, longevity and certainty,” she says.

The group’s focus in years to come is likely to be on the European Union’s 2020 targets and beyond, as well as on the Green Climate Fund, a $100bn-a-year fund to help developing countries cut emissions and adapt to climate change, which was agreed at the Durban climate talks but whose details remain patchy.

Pfeiffer concludes: “There are a lot of questions about how much private sector money the fund can attract, so we’ll be watching that very closely.”