COP21 Wrap-up: The voice of institutional investors has been louder than ever before

Reflections from a week spent at the Paris climate change talks

COP21 is drawing to a close. The next draft text won’t be available till tomorrow, Saturday December 12. But regardless of the outcome, it has demonstrated investor engagement like never before.

The latest draft text, released late Thursday night, has some interesting requirements, including countries to convene in 2019 to demonstrate effectiveness in meeting targets, it also legally requires developed countries to financially help poor countries transition from fossil fuels to clean energy.

On behalf of investors, Stephanie Pfeifer, CEO of the ‎Institutional Investors Group on Climate Change (IIGCC), a network of 120 institutional investors, representing over €13trn in assets under management, said the body welcomed the long-term low-emissions development strategies embedded in the latest text.

Though voluntary, Pfeifer said: “We strongly support this voluntary provision since the development of these strategies will by definition give investors confidence about trajectories at a country by country level and hope world governments will retain them in the final agreement.”

It reflects the more central role investors had in this COP than in previous events.

Amid all the noise at such an event, a few key themes emerged from investors during the various talks, both official and unofficial. Unsurprisingly, these were: carbon price, the new climate disclosure taskforce and China’s push on green finance.

On Sunday morning, at an event organised by the CDP and South Pole Group to launch the CLIMPAX climate rating project, French and German officials stressed the importance of consistent standards which the new taskforce may try to develop.

Anne Guillou, a French politician in an energy ministry, spoke about the country’s new energy transition law, which includes an SRI label for funds – which she suggested could become a European, and maybe even a world standard. “The label will be available from 2016 for all European investment funds, we hope they will try and apply for the label.”Germany’s Franzjosef Schafhausen also stressed the need for labelling. “Transparency and standards are very important. There are 100s of labels, we need clear criteria.”

He said Germany was in touch with the Chinese around emissions trading and indicative instruments like labelling.

It was clear that China’s active engagement on the agenda was important for policy makers. At a UN business event around climate change Denmark’s minister for foreign affairs said China’s plan to test emissions trading systems on its “vast territory” was a good sign.

“If China is on board, and Europe is on board, and Canada (which has a number of provinces with carbon trading systems) then let’s look for a global solution,” he said.

Another emergent investment-related theme was the pressures on landscapes and cities – and how to get private finance to support this.

Speaking at the Global Landscapes Forum, Laura Tuck, vice president for sustainable development at the World Bank explained why this was vital. “We can’t postpone adaptation. This is the hottest year on record.”

Mark Burrows, vice chairman at Credit Suisse, said people were starting to value natural capital, but added the caveat that it was “very emerging”. He spoke about the future of conservation finance, and admitted his own passion was finding a financial instrument to prevent environmental degradation of the barrier reef. “It could be a debt instrument guaranteed by the certainty of the ecosystem itself, like sovereign debt,” he mused.

Influential figures such as Baroness Ariane de Rothschild, Chair of the Executive Committee at Edmond de Rothschild Group and Dr Ngozi Okonjo-Iweala, Nigeria’s former Minister of Finance, discussed the necessity but difficulty in getting this type of finance into landscape adaptation. De Rothschild said it was essential to get public private partnerships to financially viable projects. But she admitted: “The problem of structuring these products is that these projects have to invest for the next ten to 20 years.

Finding projects you will be comfortable with over the next 20 years is scarce. The financial world is still getting used to these projects.”

Dr Ngozi said despite there being some $300trn of private capital around and low interest rates, landscape investments were inherently risky. “The key issue is risk. International countries are not coming together to tackle risk to get access to the trillions sloshing around.

“We talk about innovative finance but no-one is doing it.”

But she ended on a positive note: “I keep my fingers crossed. I’m optimistic about young people with expectations will push politicians and policy makers on this.”

The theme of youth, and the expectations of the next generation was central and oft repeated during the various events. Most significantly, US Secretary of State John Kerry, said at a New York Times Conference Energy for Tomorrow, that: “Young people growing up now are not going to stand for hypocrisy and demand sustainable options.”

The day before, Kerry was speaking at an official UN event where the focus was business under the Lima-Paris Action Agenda. The event included speeches from UN Secretary General Ban Ki–moon.

Kerry was very clear on the direction of travel towards a low-carbon economy, calling it “one of the most significant economic opportunities the world has ever seen”. He said the clean energy transition would create job and economic growth, saying the most ignored component of the transition is that we can “do well and do good”.

“Solutions to climate change are not waiting to be discovered,” he said. “We know it’s energy policy.

“I believe the significance of Paris will be in the signal we send to the market place.”

The event was dominated by business and political representatives, but it was nice to see some investor input, namely from Philippe Desfossés, chief executive of ERAFP, who amongst other things highlighted the need to focus on agriculture around climate change risk.

But Assaad Razzouk, chief executive ofSingapore-based Sindicatum and chair of the Association for Sustainable & Responsible Investment in Asia (ASrIA), was quite critical of the investment community towards tackling climate change.

He said: “Financial markets say they need certainty so stay quiet about climate risk and carbon risk. But they don’t go to government about sovereign risk or interest rate risk.
“But they are just sitting and waiting for government to tell them how to price climate risk – this has to change.”
A thread at the event was fossil fuel companies suggesting they would be the drivers of the low-carbon transition. Gérard Moutet, Executive Vice President Energy-Climate at Total, speaking at the World Climate Summit, speaking about solar plants said: “Oil and gas companies are well positioned to help in the transition. They know the market, most are very international and they have the huge technological capacity.”
A highlight was the New York Times Energy for Tomorrow Conference featuring the likes of Kerry and US Energy secretary Ernest Moniz.

Again, Kerry was very clear on the direction of travel, as was Moniz who described the urgency in generating investable opportunities for private investors. John Danilovich, secretary general of the International Chambers of Commerce, also said companies were feeling the heat from shareholders on climate change.

The most profound investor sentiment from the whole of COP21 probably came from Anne Simpson, head of governance at CalPERS, who said pension funds needed to think of themselves as owners, not investors.

She said: “We mapped the carbon footprint and found that out of 10,000 companies we owned in public markets, less than 100 were responsible for 50% of emissions in the portfolio. We are not taking on the world.”

She also came out against divestment, saying: “Selling shares is passing the buck,” she said. “Less glamorous is getting a transition and strategy with these companies.” However this all plays out, investors have proved they are finally at the centre of the debate.