Part 1: Paris Climate Week report May 21: Presidential backing for investor decarbonisation

François Hollande supports Green Bonds, while Nick Stern and the Saudi Minister for Oil discuss the economics and physics of climate change…

French President François Hollande has indicated that investors are firmly on the agenda for the COP21 conference this December in Paris. In one of the precursor events in Paris this week, the Business & Climate Summit, the Portfolio Decarbonisation Coalition, Green Bonds and discussions around putting carbon risk and climate data into bond ratings and insurance risk received Hollande’s backing. He told the conference: “There is already $45bn dollars of commitment for the Portfolio Decarbonisation Coalition, and French investors are playing their part.” On Green Bonds he added: “This market is developing and we hope that it could unlock the financial resources that will be part of the green transition.” Encouraging support indeed. But as one of those French investors, Philippe Desfossés, CEO at ERAFP, the €20bn pension fund, pointed out, it was “urgent for politicians to stop changing the rules of the game when it has started in terms of subsidies and regulation for low carbon growth.” Desfossés also warned of impending legal action for pension funds that don’t take action on climate change: “There are lawsuits that are being prepared. How can you be a fiduciary pension fund manager when you see all the risks that are being debated around climate change and you are not taking these into account into your investment for long-term beneficiaries? Are you saying that you just don’t give a damn?” Ian Simm, Founder and CEO of Impax Asset Management said one of the problems was that institutional asset allocation models had problems with “fat-tail risk issues” such as climate change: “We saw the same problem with the financial crisis.”
Purna Saggurti, Chairman Global Corporate and Investment Banking at Bank of America, said the world needed to start de-risking the opportunities for investment to mobilise finance, and pointed to the bank’sown $1bn of catalysing finance: “The money is there. Debt is cheap at the moment, but that money is not being allocated.” Mats Andersson, CEO at AP4, the Swedish government buffer pension fund, said pension funds were a relatively untapped resource for climate financing. But he argued that a carbon tax was required to underpin that potential: “It should be implemented and it would be a very good signal for investors to start putting their money into renewables. We’ll keep repeating this message until it happens.”

That could be a long-time coming while the economics of climate change continue to polarise. Ali Al-Naimi, Minister of Petroleum and Mineral Resources in Saudi Arabia, said he saw little change in fossil fuel consumption before 2050. He said the Saudis were developing significant solar capacity and pinning their hopes on improved carbon capture and storage (CCS) technology. Nick Stern, Chair of the Grantham Research Institute, warned that the discussions to take place at COP21 are already predicated on commitments commensurate to a world with a 3.5 degree temperature rise against pre-industrial levels, meaning they had to be the baseline to much greater efforts in areas such as green infrastructure and agriculture investment in the coming 20 years: “Paris is a floor, and the developed world needs to start doing much more low carbon technology transfer to the developing world thereafter.” Responding to the Saudi Minister, Stern said: “This is not a time question, it’s a physics issue, a stock issue. The research shows that we need to leave two thirds of hydrocarbons unburned so as not to breach a two-degree temperature rise. We’ve heard today about technology developments such as CCS and the potential for investment. The question is whether we have the wisdom to start putting the incentives in place to hasten their arrival.”

Will investors be part of the solution to climate change, or part of the problem?
Join the debate at RI Europe 2015 link