Richard Keery: How investors can lead the transition to renewable electricity

Why Strathclyde fund has joined the RE100 investor initiative

As the second week of the COP 21 conference in Paris draws to a close, diplomats, individuals, governments and companies will be watching, eager to learn the outcome of two weeks of intense negotiations. For those of us in the investment community, the climate change battle is a crucial one – not just for the returns on our investments, but also for the future of the beneficiaries whose money we manage.
There is much talk of decarbonising portfolios and moving away from high carbon stocks such as coal. There is mounting evidence that such stocks represent risky and unprofitable investments over the long term. But the fact remains that global demand for energy will continue to climb steeply in the decades to come. Increasing the demand for clean energy is therefore a critical element of the transition to a low carbon economy.
That’s why, as a responsible investor with ever increasing investment in the renewables sector, Strathclyde Pension Fund has joined the RE100 investor initiative, coordinated by ShareAction.
The RE100 project supports and celebrates companies that switch to 100% renewable electricity, over an agreed timeline. So far, 53 companies including Unilever, IKEA, Marks & Spencer and Google have already committed to this standard. We will be working together with other founding members of the investor initiative to ask companies in our portfolios to sign up to the RE100 standard, engaging through meetings, letters and AGM attendance.
Our hope is that this initiative will not only significantly increase demand for renewable energy in the corporate sector, although that is of course a key aim. It also sends a powerful message that businesses can lead the way in the transition to a sustainable economy.
Analysis from The Climate Group and the Carbon Disclosure Project, who deliver the RE100 initiative in partnership, suggests that a switch to renewables by the private sector could cut global CO2 emissions by 15%. Smart companies recognise that switching to renewable energy is reliable, profitable, sustainable and the right thing to do to curb dangerous climate change.It is a straightforward and manageable way to reduce a company’s carbon footprint. It sends hugely reassuring signals to investors like us that a company is taking the financial risks of climate change seriously, and is adapting its business model to be resilient to unpredictable energy scenarios.

For Strathclyde Pension Fund, it makes sense for us to engage with companies in this way. Almost all of the companies in our portfolio are exposed to energy risk. Our investment managers need to be able to choose companies that are positioning their businesses for the future. Adopting renewable energy is a future-proofing exercise for many companies.
The scale and urgency of climate change is so great that we must all find ways to actively seek and implement solutions. As investors, we can appeal for change by engaging with the companies that we invest in, encouraging them to take the lead in creating the demand we need to see in the renewables sector that will make it cost-effective. At Strathclyde, we are continually increasing our direct impact investments in this sector; stimulating demand through our investee companies creates a virtuous circle.
An ambitious and robust climate agreement in Paris will help accelerate the shift to a low carbon economy. There is a shared sense of concern and desire for action by policymakers in the investor community. But change in the policy landscape must be accompanied by demand-led increase in sustainable energy. We’re proud to be able to stimulate some of that demand by being part of ShareAction’s RE100 investor initiative. Here’s to the next wave of global companies making that commitment.

ShareAction’s RE100 investor initiative launched on 9 December. Founding members include Strathclyde Pension Fund, Aviva Investors, ERAPF, Environment Agency Pension Fund and KLP.

Richard Keery is Investment Manager at Strathclyde Pension Fund.