Investors must think of their own self interest, but also that of future generations: it won’t be easy, but it is possible, and necessary.
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Returning to the unconventional stewardship, which I called for in for my first article, I urge you to follow the guidance of Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change. Speaking at the 2014 PRI conference in Canada, she exhorted for corporate lobbying to be “scrubbed”. By this she meant that concerned investors should explain to corporate leaders that lobbying against a global deal on climate change amounts to suicidal behaviour, which could destroy their shareholders and themselves. From Financial Times columnists like John Gapper to the powerful lobby group Business Europe, many agree that a global deal is needed that severely restricts CO2 emissions and outlaws market distortions that undermine competitiveness. Industry needs a clear signal that bail outs – including to pension funds that are exposed to fossil fuels – will not be provided as they were during the Global Financial Crisis.
Investors should seriously consider proposing resolutions that call on companies to de-carbonise in ways that will safeguard investment returns portfolio-wide. Some companies may choose to pay back dividends. These funds can be used to diversify portfolios. Other companies may make a strategic transition to renewables or hydrogen and carbon capture and storage (CCS). Provided you are confident of their sincerity and commitment to doing their part to ensure warming doesn’t go beyond 2 ºC, let management decide the best strategy for their company. If you are not confident, it is your duty to replace such leaders.
Investors should also demand that governments move markets in keeping with the free enterprise system they, and you, the world’s largest investors, so regularly espouse. That is to say, governments should be pushed to swiftly devise a clear, detailed plan to totally eliminate energy subsidies, or to at least provide equivalent breaks for fossil fuels and renewables.
Those who have dedicated some thought to the subject support a price on carbon. That some fossil fuel companies are now calling for one also corroborates this conclusion. But perpetuating the status quo with bland statements no longer serves your ilk. You well know that carbon trading schemes are not buttressing an appropriately high carbon price; the EU ETS being an unfortunate example. As a result of political capture, the scheme established by our cousins in Australia has suffered a similar fate. It will take courage and resolve to assert and uphold your conviction that a global tax on carbon is necessary, one fixed to adequately incentivise all companies to reduce their carbon footprint enough to keep within a 2 ºC warming scenario. Fortunately, the precipitous slide of oil and gas stocks over the past two quarters, and new additions to our ranks like Lawrence Summers, are combining to generate an aiding wind at our backs.
I say to the ESG community, I have more to offer than the intrinsic reward of knowing you are playing a pivotal role in helping civilisation transforming would-be destruction into a great transition. In addition to preserving your clients’ and your own wealth and wellbeing, you will be able to look future generations in the eye and explain with pride the actions you took to avert disaster. I cannot guarantee that you will not face some career risk from choosing intrepid leadership over pusillanimous complaisance. But, if you work together and challenge laggard peers along the way, the pitfalls of your collective agency challenge can be successfully navigated. No war is risk free. No warrior victorious without courage. Collective efforts and shared goals can achieve much. It is no use saying, we are doing our best. Sometimes you have to do what is necessary.
Further considerations include your existing position of privilege and unparalleled access to information regarding the consequences of climate change. Being among the most highly
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