GENEVA/NAIROBI 16 Nov. 2010 - The world's largest global investors have a powerful message for governments and policy-makers around the world as well as climate negotiators in Cancun: take action now in the fight against global warming or risk economic disruptions far more severe than the recent financial crisis.
Citing potential climate-related GDP losses of up to 20 percent by 2050 and the economic benefits of shifting to low-carbon and resource-efficient economies, investors released a major statement today calling for national and international policies that will spur private investment into low-carbon technology.
The statement was signed by 259 investors from Asia, Africa, Australia, Europe, Latin America and North America, with collective assets under management totaling over $15 trillion-more than one-quarter of global market capitalisation. Signatories do not only include global giants Allianz and HSBC, but also investment organizations from many developing countries and emerging economies, including South Africa, Nigeria and Brazil. It is the largest-ever group of investors to call for government action on climate change.
"We cannot drag our feet on the issue of global climate change," said Barbara Krumsiek, Chair of the UN Environment Programme Finance Initiative and CEO of US-based investment firm Calvert Investments. "Calvert is deeply concerned about the devastating impacts climate change - if left unaddressed - will have on the global economy. Based on the Stern Report, we know these impacts could reach global GDP cuts of an unimaginable 20% per year. Why should we take that risk? The solutions are quickly emerging and we must deploy these solutions to help secure the innovation and sustainable growth our economies need."
Today's statement comes in advance of key negotiations in Cancun, beginning on 29 November, to agree on a new international climate change regime to substitute the Kyoto Protocol.
Investors are aware that the developing world plays a crucial role in the global response to climate change. Not only will it be hit hardest by the physical impacts of climate change, but developing countries and emerging economies will also have to increasingly reduce the carbon intensity of their economies if the world is to effectively keep temperature increases to a maximum of 2 degrees Celsius. This will require additional capital investments which investors can provide if post-Kyoto certainty at the global level is combined with sound policy frameworks locally as well as international instruments to de-risk low-carbon investments in these countries.
While low-carbon global investment is increasing, especially in Asia, investors say substantially more private capital would be available for renewable energy, energy efficiency and other low-carbon technologies, if stronger policies were in place. Global clean energy investment is expected to eclipse $200 billion in 2010, up slightly from 2009 but substantially less than the roughly $500 billion that Bloomberg New Energy Finance and the World Economic Forum says is needed per year by 2020 to restrict warming to below 2 degrees.
Reflecting its weaker policies, North America lags well behind Europe and Asia in clean energy investing, supporting $20.7 billion in renewable energy projects in 2009, in comparison to $43.7 billion for Europe and $40.8 billion for Asia, according to a recent report by the United Nations Environment Programme (UNEP). The gap has increased this year, with the U.S. investing only $4.4 billion in third-quarter 2010 while China's investments topped $13.5 billion and Europe $8.4 billion.
"A basic lesson to be learned from past experience in renewable energy is that, almost without exception, private sector investment in climate solutions has been driven by consistent and sustained government policy. Experiences from countries such as Spain, Germany and China show how structured policies can bolster investor confidence and help drive renewable energy investments. These experiences also show how such policies can bring technologies down the cost curve and eventually strengthen their competitiveness," said Ole Beier Sørensen, Chairman of the Institutional Investor Group on Climate Change and chief of Research and Strategy at the Danish pension fund ATP, with EUR56 billion in assets.
Investors had a particularly sharp message for the new U.S. Congress.
"Climate change may be out of vogue in Washington today, but it poses serious financial risks that are not going away and will only increase the longer we delay enacting sensible policies to transition to a low-carbon economy," said Jack Ehnes, CEO of the California State Teachers' Retirement System (CalSTRS), the second largest public pension fund in the US. "The nation's leaders should take the cue from California, where strong clean energy policies have spurred American innovation and created thousands of jobs."
"This statement shows investors are serious about the risks posed by climate change and the importance our community places on action by government to reach a global agreement. Investors need greater policy certainty from governments," said Donald MacDonald, trustee, BT Pension Scheme, and chair, Principles for Responsible Investment. "Deferring climate change agreement adds to investor concerns that climate change risks and costs are not taken seriously. The Cancun talks provide an opportunity for all concerned governments to take leadership on this important issue and start framing an agreement needed to create a sustainable investment environment."
The statement calls for the following domestic policies in both developed and developing countries:
- Short-, mid- and long-term greenhouse gas reduction targets
- Energy and transportation policies to accelerate deployment of energy efficiency, renewable energy, green buildings, clean vehicles and clean fuels;
- Strong and sustained price signals on carbon emissions and well-designed carbon markets;
- Phase out fossil-fuel subsidies, as agreed to by G-20 leaders in 2009;
- Adaptation measures to reduce unavoidable climate change impacts, and;
- Corporate disclosure of material climate-related risks.
While no comprehensive agreement is expected, investors are hoping for some forward movement during the international negotiations in Cancun. Among the investors' key priorities is delivery of promised fast-start climate financing, consistent with pledges at last year's UN climate negotiations in Copenhagen. Developed countries vowed at that time to channel up to $100 billion a year of climate finance from multiple sources by 2020, including $30 billion of "fast-start" funding from 2010 to 2012.
Other areas where investors hope to see agreements or progress in Cancun:
- The financial architecture (access, governance, etc) of climate funding, which will facilitate a greater role for private investment;
- A rapid timeframe for implementation of efforts to reduce emissions from deforestation and forest degradation (REDD) and REDD-plus);
- Robust measurement, reporting and verification (MRV) to increase confidence in national climate policies
- Expanding and deepening the international carbon market, including greater clarity on the future interplay of the Carbon Development Mechanism (CDM), Joint Implementation (JI) and emerging crediting mechanisms such as Nationally Appropriate Mitigation Actions (NAMAs) and REDD-plus;
- Support for the creation of well-functioning markets in developing countries for energy efficiency and renewable energy to accelerate effective large scale deployment of those technologies;
- A clear mandate to adopt a legally binding agreement next year at COP 17 in South Africa.
Notes to Editor: The statement will be available at www.unepfi.org at 16.00h on 16 November 2010.