Daniel Brooksbank: COP21 kicks off amid a genuine sense of investor, corporate and policy transition

The COP21 Paris climate change talks start today amid a genuine atmosphere of transition among institutional investors, companies and policy makers. It can be trite to talk about a tipping point, but COP21 takes place against the investor backdrop of the Montreal Pledge, the Portfolio Decarbonisation Coalition and various new low carbon disclosure rules for investors. The issue is now firmly on the agenda of the G20 and the Financial Stability Board following the advocacy of Bank of England Governor, Mark Carney. Then there have been the major environmental policy statements from leading investors such as ABP and PFZW.
There have been massive environmental commitments from global banks as well. Not to mention the global fossil divestment campaign.
The Aiming for A shareholder voting campaign at BP, Shell and Statoil not only got buy-in from the companies themselves – no mean feat – but virtually unanimous investor support. One could strongly argue that the campaign has, indirectly, led to mining giant BHP announcing a 2° stress test, and the SEC to push Exxon and Peabody Energy on environmental reporting. An executive from Statoil told RI that Aiming for A provided a common position for both investors and the company to work from. At the policy level, it’s worth noting decisions by the Canadian province of Alberta to start shifting away from being a ‘petro–state’, and the change in tone on climate change from the new Australian government. One could go on: there’s a tangible shift taking place, that feels deep and structural. Howard Covington, the investment banker who was a founding shareholder of New Star Asset Management, and who now advocates ‘forceful stewardship’ on climatechange, wryly notes receiving an investment note from a leading US funds house. It declines to talk about climate change – preferring to speak of a “sentiment shift”. Even Kepler Cheuvreux’s respected ESG team has been renamed, with team leader Stéphane Voisin now Head of Transition Research & Investment : Sustainable Finance. As Carbon Tracker CEO Anthony Hobley puts it: “We are in the midst of a technical transition of the type that did for Kodak, steam trains and Olivetti.” Jeremy Leggett, the author and activist (who chairs Carbon Tracker), identifies 12 recent events that signal this shift. They range from EON’s split into grid and renewables arms, the surprise G7 announcement in June about phasing out fossil fuels, the Papal encyclical, the Dutch court case and so forth. “Energy incumbency is in descent,” is how he phrases it. Consider that Berlin Hyp’s pioneering green Pfandbrief (covered bond) earlier this year attracted 15 new investors to the issuer – and this for what is seen as one of the safest debt investments around – tracing its roots back to 1769 with the last default in 1901! A diversification of investor base was a key objective for Berlin Hyp. Going green definitely achieved this. Lord Stern, the go-to climate economist, told a We Are Business/IIGCC event last week: “Paris is not Copenhagen – the process will be more collaborative, the sense of urgency is much strong with rising emissions. Politics has changed. There is a turnaround which is deep and real within China now for several years. The politics of the US and China is looking very different. Paris is likely to be a success.”
But he added: “It’s about investment, innovation and growth. The world has lots of savings but not investment demand. It requires policy and innovation.” Even the
Economist magazine, not known for being a cuddly ESG advocate, has got into the act – lambasting oil firms for “ducking the issue of global warming” (‘Nodding Donkeys’, November 12). Despite this, there are differing views within investors about how to address all this, if at all. Meryam Omi, Head of Sustainability at Legal and General Investment Management, says climate change isn’t really resonating with fund managers and analysts. As for oil companies, she says, some do ‘get’ investor climate change engagement, while the likes of Chevron don’t even pick up the phone.Covington says just 5-10% of investors are engaged in the issue and that the other 90% “couldn’t care less”. Investment banks, he says, are “really Neanderthal about all this” – still at the level of looking at the science. His stance is that it is like the Internet in the 1990s. Poetically, Carbon Tracker’s Hobley evokes the stirring St. Crispin’s Day speech in Shakepeare’s Henry V. Ahead of the Battle of Agincourt [between two now friendly European neighbours!], to evoke the climate battle we now face, often against huge odds, starting today.
Henry says to his outnumbered troops that men “now a-bed/Shall think themselves accurs’d they were not here.” Let’s all be in Paris in spirit, and then in action!