Over a year ago, we released our third Global Climate 500 Report. We found that close to 85% of investors were doing little or refusing to disclose their strategies, and only 2% of investors could calculate their emissions intensity. Meanwhile, the leaders were accelerating in their preparedness, investing more in renewable energy and decarbonising their portfolios.
Investors divided on Chevron
When Arjuna Capital’s ‘capital return’ resolution at Chevron was voted down, we imagine the fossil free industry was rubbing its hands together with glee. Yet the loss belied a much greater development in investor engagement on climate change: the resolution split the industry on how best to deal with recalcitrant carbon majors. This is just part of the reason for a record-breaking number of climate-related resolutions at ExxonMobil and Chevron in 2016.
France mandated climate disclosure by investors
In a world-first, France announced that it would require all institutional investors to disclose information on how they are managing the risks of climate change. Pension fund members will have more information and there will hopefully be a race to the top in tackling the problem of stranded assets and the carbon bubble.
UNPRI Fiduciary Duty Report
In September, the UN Principles for Responsible Investment released a landmark report, putting it beyond doubt that in the P7 economies, pension funds are under a fiduciary duty to manage the risks of climate change in the best interests of their beneficiaries. This means they will have to implement processes to avoid the sudden bursting of the carbon bubble and manage their portfolios for the long term, in most cases, which ought to mean agitating for a world in which climate change is solved.
China and US renew their commitment to climate change action
Following on from 2014’s statement, China and the US set the stage for COP21 by reaffirming their commitment to fighting climate change and ensuring a successful outcome in Paris. Both Obama and Xi outlined new plans to build more renewable energy capacity and China is to launch a national emissions trading scheme in 2017 across the most polluting sectors of the economy.
The Bank of England intervened
The Governor of the Bank of England, Mark Carney, brought climate change into focus as a tragedy of the horizon, because it extends beyond the business and political cycles, and the horizons of monetary policy and financial stability. The high-profile speech has drawn more attention to the need to prepare sooner rather than later for 2°C policy settings. In a message of simplicity to investors, Carney encouraged investors and the financial world to face climate change head on: “[b]y managing what gets measured, we can break the Tragedy of the Horizon”.
The Paris Agreement
For the first time, we have a global agreement on climate change and the framework by which nations will tackle it. Most significantly, the agreement signalled an aspirational target of keeping average temperature increases to below 1.5°C, meaning less pain in adapting to our changed climate. There is still a great deal of work to be done in each country by politicians, civil society and the public, but there is now no doubt that the transition is on in earnest.
The Financial Stability Board turned its focus to climate risk
Creating the new Taskforce for Climate-related Financial Disclosures and appointing Michael Bloomberg as its Chair, the Financial Stability Board has brought its nous and understanding of systemic risk to the problem of the carbon bubble. The Taskforce is examining the prospect of common reporting and disclosure frameworks for companies, investors and intermediaries regarding climate change-related indicators, providing the foundation for financial markets to properly account for climate risk. The Taskforce is due to report by the end of the year.
What’s in store for the rest of 2016? Will engagement come to the fore? Will investors continue to decarbonise and pour more money into renewable energy? Today, we provide you with a glimpse as to the financial world’s trajectory on climate risk management. But, of course, a lot can change in a year.