Decades of scientific evidence from the Intergovernmental Panel on Climate Change (IPCC) has detailed a significant transition is necessary to contain severe climate-related risks to food production, infrastructure, water supply, human security and economic growth. Without greater action in line with the goals of the Paris Agreement, average global temperature rises of around 4 degrees Celsius can be expected to result in an estimated $23 trillion of associated global economic losses over the next 80 years. This has the potential to harm all economies, asset classes and industries, whether directly or indirectly, with escalating consequences for all financial market actors. It is therefore appropriate that financial market participants address investment-related climate risks and opportunities. The OECD estimates that $6.9 trillion in investment will be required across energy, transport, building and water infrastructure each year through 2030 to meet the world’s climate and development objectives. Others have found $460 billion a year more will need to be invested out to 2030 to decarbonise the global energy system in line with limiting global warming at 1.5 degrees Celsius.
The increase in the frequency and intensity of extreme weather events could trigger non-linear and irreversible financial losses. In turn, the immediate and system-wide transition required to fight climate change could have far reaching effects potentially affecting every single agent in the economy and every single asset price.
Investors take a wide variety of approaches to managing climate-relatedfinancial risks in their portfoliosand Climate Action 100+ preserves and promotes signatory rights to independent implementation of their fiduciary duty, to manage climate risks on behalf of their clients and beneficiaries.
STEWARDSHIP AND ENGAGEMENT
Investors are increasingly recognising their exposure to climate risks and their fiduciary duty to respond. While investors can invest in companies and projects that will deliverthe necessary clean technology transition, they also have a powerful opportunity to engage heavy emittingcompanies around business strategies, diversification and transformation through their equity and fixed-income holdings. This is possible through investment stewardship – direct engagement with public companies to achieve corporate practice consistent with long-term value protection and creation.
Money talks. If we can deploy capital and the power of financial markets, we can ensure companies make the transition needed to cap global warming.
Asset owners in particular have a vital role to play in the net-zero transition across the global economy. Asset owner support for Climate Action 100+ helps to demonstrate investors’ conviction in the materiality of climate risk and signals the importance of engagement on climate change to investment managers and engagement service providers. In addition, asset owner participation will help ensure that company boards and senior management around the world hear a strong message on climate change from investors.
Investment managers also have a role to play within their clear directive of fiduciary duty. Climate Action 100+ signatories have access to several tools that can help protect long-term value for their clients, including clear frameworks to track emissions reductions progress towards goals, flexible participation in working groups that feature access to company management, industry experts, and other investors and asset owners, and the option to participate in collaborative engagements. Applied thoughtfully, the breadth and depth of experts and information available to Climate Action 100+ signatories can help with insights and perspective on one of the largest systemic risks to all investments: the global impact of greenhouse gas emissions from the world’s largest emitters.
