Attending a UN climate conference for the first time, as I did in Poznan in mid-December, was an eye-opener. It brought home the large number of competing interests and the difficulties of influencing the shape of the treaty that will follow the Kyoto Protocol and determine the post-2012 international policy framework on climate change. More than 10,000 participants descended on the Polish city for a two-week conference – the 14th Conference of the Parties to the United Nations Climate Convention – including policymakers, NGOs and other stakeholders. Institutional investors have in the past kept a low profile at these events. There are probably only a handful of investors who have ever looked at the text of the Kyoto Protocol. The Institutional Investors Group on Climate Change (IIGCC, the European forum for collaboration between pension funds and asset managers on climate change) was intent on making the investor voice heard. It went to the conference armed with the “Investor Statement on the Global Agreement on Climate Change” outlining how a new international treaty could support investment into a low-carbon economy. The Statement was co-ordinated together with the US-based Investor Network on Climate Risk and theAustralia/New Zealand Investor Group on Climate Change and signed by some 150 investors with over $9 trillion in assets. The overwhelming support for the Statement was indicative of the recognition by investors that climate change and climate policy will increasingly have an impact on the global economy as well as on individual investments. Rob Lake, head of sustainability at APG Investments, who was part of the IIGCC delegation, said at the conference that the signatories were persuaded by the economic and scientific case of climate policy and had a fiduciary duty to take it seriously. The Statement has since proved a useful starting point for a proper dialogue between the investment community and governments involved in the climate negotiations. It called for a strong and clear international policy framework on climate change that would underpin investor confidence in the direction of regional and national climate policy. It emphasised the importance of ambitious international emission reduction targets based on latest scientific evidence, of long and medium-term targets for developed countries and commitments to national action plans from developing countries.
The Statement also considered some of the policy mechanisms by which these targets might be met, including an expanded and more liquid global carbon market and a reformed Clean Development Mechanism. It also focused on government support for investment in early stage technologies and support for measures to reverse deforestation and funding for action to cope with the already unavoidable impacts of climate change.
Expectations for concrete outcomes from Poznan were always relatively low. The conference was seen as a halfway stage between the UN climate conference in Bali in 2007 and that in Copenhagen at the end of 2009, which it is hoped will deliver the new global agreement. Indeed, there was a palpable sense of frustration about the slow pace of these talks. Complaints were voiced about a lack of political leadership and there was a sense that the talks were deadlocked until Barack Obama had been sworn in. Much hope is now pinned on the new US administration injecting renewed political momentum into the discussions. Negotiators have no shortage of proposals to consider, not least from developing countries such as China, Mexico, Brazil and South Africa. A positive outcome from Poznan is the agreement that a single negotiating text should be in place by June and so the negotiations can now begin in earnest. Investors should take this opportunity to feed their views into thenegotiating process.
It was abundantly clear from the talks the IIGCC had in Poznan and afterwards that negotiators are looking for concrete proposals from the investment community, particularly in relation to existing market mechanisms – carbon markets – and on how public sector support can be used to leverage private sector finance.
“Investors should recognise that they could now be knocking on an open door.”
A particular sticking point in the negotiations is likely to be how investment can be channelled towards developing countries. There is much scope for investors to collaborate to come up with specific proposals that will support the conclusion of a global deal in Copenhagen and also support long-term investment returns.
Investors should recognise that they could now be knocking on an open door. Governments and regulators are looking for investors to come forward with concrete proposals to ensure an international political framework that supports private sector investment into a low carbon economy.
Stephanie Pfeifer is programme director for the Institutional Investors Group on Climate Change