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On climate action, investors win or lose together

The five things investors should do to support SDG 13, according to Jan Erik Saugestad, CEO of Storebrand Asset Management

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Climate change is accelerating faster than the efforts to address it. Given this, the financial sector must play a key role in redirecting capital flows from destructive to sustainable practices and come up with innovative solutions to combat climate change. As a global investor, we need to push for positive change and put the Sustainable Development Goals in motion, but we can't do this alone. To fast-track effective efforts, we need to mobilise as an investor community, which is why I would like to put forward five ways to encourage further collaboration on climate action.

1. Power into solutions

It’s hard to find better news than the global growth of solar and wind power eating into coal demand, alongside the growing prospects of battery storage. Solar and wind power now makes up a tenth of global electricity needs, close to overtaking nuclear power. As Covid-19 took hold during the first half of the year, 21% of Europe’s total electricity generation came from these clean sources, reaching 42% in Germany and 64% in Denmark. In Spain, wind and solar PV installations grew by 20% in 2019, and during this year coal generation fell by 58% in tandem with gas dropping by 20%. The alternatives to polluting energy are here, and we as a community need to invest more in these solutions. Not only because of the positive impact on the climate, but because they will bring substantial long-term return to our clients.

China is becoming the last lender of coal overseas. The new five-year plan looms, and it can literally determine the fate of humanity. All levers should be used to influence this in a positive direction away from coal.

We also need to consider broader topics such as how to build sustainable cities and how to ensure a transition to a circular economy. The EU is accelerating the transition towards a regenerative growth model that gives back to the planet more than it takes, and we need to play our part.

As we and other investors increase capital flows into the best performing and most sustainable companies, we naturally avoid risks, identify opportunities and improve resilience to the effects of climate change.

2. Avoid complacency on coal

As Europe and North America experience a coal crash, the picture on coal in Asia is more complex. China continues to build the most solar and wind in the world, but this alongside its terrifyingly incongruous new build of coal power stations, which will result in over-capacity and stranded assets. China is also becoming the last lender of coal overseas. The new five-year plan looms, and it can literally determine the fate of humanity. All levers should be used to influence this in a positive direction away from coal. 

Outside of China the picture is not as bleak but there is a lot of work to be done: India has shown real renewables ambition, with international cooperation dimensions, especially on solar replacing new coal. Unfortunately, Prime Minister Modi has recently announced a coal auction that India doesn’t need, which would displace communities and destroy forests. Yet in India, and across the last coal power bastions in Asia, there are new signs of change. For instance, the Korean Parliament is debating an overseas coal financing ban and Japan is slowly shifting away from coal.

So the fight to get rid of the dirtiest energy is still very real. Even if just a single new coal plant is built, our climate goals immediately become more remote. While some of us feel we might have moved beyond the coal exit, the job is far from done. It is still vital to keep pressure on and continue to work with stakeholders to ensure that our climate efforts are not in vain.

3. We must put biodiversity at the heart of climate action

The most effective way to capture carbon doesn't come from new technology, but from protecting valuable ecosystems such as forests, which are far too often overlooked by policymakers and investors. However, there is growing recognition of how forests and biodiversity play a crucial role in tackling climate change, and ensuring ecosystem services. Policies which ensure sustainable ecosystem management are in the best of interests of host governments, companies and investors. Deforestation and the associated impacts on biodiversity and climate change are systemic risks that have the potential to negatively impact returns.

In this vein, we’re currently working specifically on Brazil with 34 investors managing $4.6trn to exert pressure on agribusiness and lawmakers. We are entering another extremely dangerous fire season which is already damaging the Amazon despite a 120 day forest fire ban, as well as the Pantanal which is burning from above and below.

Even though we now have greater access to the Bolsonaro administration and agribusiness, who, combined, have the power to stop this destruction, we won’t mistake access for influence and we will only take our cue from data. We need to evaluate if statements to us reflect the reality on the ground.

We also recognise that other countries deserve the same kind of attention, so we need to scale up the dialogue on deforestation in key countries. 

The work on biodiversity needs to be in focus and we as investors need to take on a data-driven approach to proactive policy dialogues. That is why it is vital that we have a process like Taskforce on Nature-related Financial Disclosures (TNFD) to resolve the reporting, metrics and data needs of financial institutions, which will enable them to better understand their risks, dependencies and impacts on nature.

Even though we now have greater access to the Bolsonaro administration and agribusiness, who, combined, have the power to stop this destruction, we won’t mistake access for influence and we will only take our cue from data.

4. Working together towards the global goals

As highlighted above, from Brasilia to Beijing we can find ways to apply useful influence and have an impact. From Seoul to Madrid, there is a new level of reception to sustainability at the highest levels of government that we should encourage, because the private sector cannot operate in a vacuum.

Where there is regulation pushing for a green transition, from rescue packages in various countries being tied to emissions curbing, to the EU maintaining leadership, we as an investment community need to be involved. We also need more dialogue to assure necessary change. It is only when different stakeholders such as regulators, business and civil society come together to work on solutions that are ambitious and deliverable, that success becomes tangible.

5. Constant innovation

Sustainability is not a static undertaking. It needs constant innovation and fine-tuning. In order to reach a critical mass of capital, we as investors need to have an innovative approach. We need to share best practices on how to create sustainable innovations and solutions that will address the broader capital and attract even the most reluctant clients.    

By providing the market with smart, sustainable solutions, we make it easy for our clients to make conscious decisions. As more investors help move capital in the right direction, more stakeholders will follow.

Strength in numbers 

None of the above can be done alone. We need to enter new phases of collaboration that provide mutual investor benefits. There is a lot we can do on our own to be proactive in accelerating the green transition, but we are much more powerful in numbers. On climate action, we win or lose together.

Jan Erik Saugestad is the CEO of Storebrand Asset Management