Act now or face trillions in climate asset losses, UNPRI-backed report tells long-term investors

Study puts annual environmental cost of top 3,000 companies at $2.15 trillion.

Long-term institutional investors face a rising future environmental bill that could wipe trillions off their assets over time unless they force companies, regulators and asset managers to reduce the impact of climate change, according to a study backed by the UN-backed Principles for Responsible Investment (UNPRI) and UNEP Finance Initiative. The research study by Trucost, the environmental consultant, said the world’s top 3,000 companies by market capitalisation, which represent a large proportion of global equity markets, were responsible for $2.15 trillion worth of environmental damage in 2008, calculated as the cost of their water and air pollution, greenhouse gas emissions, general waste and depleted resources. It said total global environmental damage caused by human activity in 2008 was worth $6.6 trillion, equivalent to 11% of global GDP – 20% larger than the $5.4 trillion decline in the value of pension funds in developed countries caused by the global financial crisis in 2007/8.
This figure, it said, could reach $28.6 trillion by 2050, with the utilities, oil and gas producers and industrial metals and mining sectors the biggest offenders. According to the UNPRI and UNEPFI, workers and retirees could see lower pensionpayments from funds invested in companies exposed to environmental costs when governments start applying a more vigorous “polluter pays” principle. They said large investment portfolios would be affected through higher insurance premiums on companies, taxes, inflated input prices and the price tags for clean-ups.
Both organisations said that large institutional investors needed to see themselves as Universal Owners; invested across the broad economy, and therefore with a clear need to act early on potentially costly market externalities in the best interests of long-term economic growth. Paul Clements-Hunt, executive director, UNEPFI, said: “This report sends a powerful message that the environment is also the business of business. Polluters must pay. Safeguarding the environment and using our natural assets efficiently entail collective action. Cohesive policy and regulation is required to fully account for externalities and speed up the integration of material environmental issues into investment decisions. The bottom line is that if we are to achieve a sustainable global economy, then we must stop drawing down our natural capital.”
Link to report