Why investors could do with a dose of the pox over climate change

We need to narrow our focus and prioritise resources.

The Variola virus is perhaps the most deadly virus no-one has ever heard of. A century ago, the name was equally unfamiliar, although everyone knew its effects. Variola is the pathogen that causes smallpox, an infectious disease that ravaged humankind for centuries. I say Variola ‘causes’ smallpox. In truth, ‘caused’ would be more accurate. Because for the last four decades, the world has been completely smallpox-free. The last known natural case was in 1977, in Somalia. Since then, nothing. Not a single smallpox-related death.
All very interesting, but what does Variola have to do with sustainable finance? More than you might think. Fast forward to today and human civilisation is facing another global threat: climate change.
The parallels are multiple. For one, human actions lie behind both phenomena. Variola spreads by sharing bodily fluids; climate change, by burning fossil fuels (among other anthropogenic factors). Their potential for harm is also similar. Smallpox acts fast: once infected, you can be dead within days. Climate change has a longer time-lag – although if allowed to take hold, its effects could be no less devastating (if not more so). Both these threats, lastly, are officially acknowledged. In the case of smallpox, public health authorities came together fifty years ago with the single intent of eradicating the disease. The move paid off. In what is one of the most extraordinary global health stories ever, smallpox was wiped out in a little over a decade.
Today, awareness of climate change is at a similar tipping point. The 2015 Paris Agreement marks a genuine watershed. Almost every country on the planet (with the notable exception of the US federal government) now accepts that climate change is happening and that urgent action is required.Thankfully, a similar consensus is now also emerging in the investment community. Spearheaded by networks such as the Principles for Responsible Investment, investors are making their voices heard. This isn’t Wall Street going soft. It’s about financiers responding in a highly rationale way to the greatest business threat of our age. The Investor Agenda epitomises this positive momentum. Launched earlier this month, the initiative sees nearly 400 investment firms promise to “step up action” on climate change. The signatories aren’t small fry. Collectively, the coalition manages assets worth $32 trillion – almost double the gross domestic product of the EU. Nor is this empty talk. All the coalition members have pledged to take tangible, meaningful steps in four different areas: investment, corporate engagement, investor disclosure and policy advocacy. In 12 months’ time, each will report back on the substantive measures they have adopted. Such momentum is very welcome. Redirecting private capital towards low-emission technologies and green investments is absolutely pivotal to the fight against climate change. Without it, a transition to a low-carbon global economy simple won’t happen.
But is a multi-pronged strategy really the best way to go? We have one shot to achieve the Paris Agreement. And the clock is ticking. Everyone is agreed on that. So the question is: what is the most effective use of investors’ energies (and their Euros)?
To return to smallpox once again. For decades, mass vaccination was seen as the answer. Yet the strategy proved stubbornly ineffective in densely-populated areas. So the World Health Organisation proposed a change of tack. It advocated heightened surveillance, increased prevention and, most crucially, the
containment of epidemic hotspots. Bingo; within 13 years, smallpox was no more. Climate change is more complex. Its causes are multiple and its reach more universal (by the 1960s, smallpox was mostly contained to Africa and Asia). No single action will stop it either. In an ideal world, we would unleash multiple actions on multiple fronts. But, let’s face it: the world is not ideal. Resources are tight and priorities are divided.
So can climate change ever have its own smallpox moment? I firmly believe it can. We know how to reduce greenhouse gas emissions; we just need to get on and do it.
But first we need to define who ‘we’ are. For smallpox, the answer was simple: ‘we’, in essence, meant health organisations. For climate change, in contrast, ‘we’ means all of us. That’s ‘we’ as in ‘we, consumers’, ‘we, regulators’, ‘we, energy producers’, ‘we, farmers’ – and, yes, most definitely, ‘we, investors’.
The investment sector is not starting from zero. Recent years have witnessed a slew of climate initiatives. Indeed, the world of sustainable finance is fast becoming an acronym soup: the FSB’s TFCFB, the G20’s GFSG, the EU’s HLEG, the UN’s PRI, the LMA’s GLPs, the NGFS, the GGFC, and so it goes on.The Investor Agenda provides a welcome narrowing of priorities. Its focus on four areas of action makes sense. These are the fields where we investors are already most active and where our potential for impact is highest. But I’d like to see our focus narrowed even further. The eradication of smallpox is a story of huge ambition coupled with very targeted action. The Investor Agenda boasts the first, but – as yet – not the second. It still reads too much like a wish list, ranging from low-carbon investments and coal divestments through to disclosure transparency and progressive lobbying.
Don’t get me wrong. I’m not suggesting investors hold back. Climate change is at last garnering real traction. We need to do everything in our powers to keep it that way. My fear is that 400 reports saying different things won’t “accelerate action”. What will, I believe, is seeing investment capital making a significant, incontrovertible dent on anthropogenic emissions. In that regard, the calls to action within the Investor Agenda are all commendable. But let’s prioritise one or two and collectively throw everything behind them. $32 trillion worth of assets gives us serious clout. If, like smallpox, we’re to make climate change history, then we must use it wisely – and narrowly.

Sasja Beslik is Head of Group Sustainable Finance at Nordea.