Investors get high-level support for Draghi letter on climate ‘stranded’ assets

Investors have succeeded in picking up high-level political and institutional support for a letter to Mario Draghi, President of the European Central Bank (ECB) urging him to investigate if the European Union’s exposure to high carbon investments could leave investors with “stranded assets and poor returns” because of regulatory investment requirements. The letter to Draghi, which is being sent today (March 1), was drafted by institutions including Aviva Investors and Climate Change Capital, and initially signed by Peter Ainsworth, Founder and Chair, Conservative Environment Network and former MP and Shadow Secretary of State for Environment, Food and Rural Affairs. But support has gathered pace with subsequent signatories to the letter including Zac Goldsmith MP, Member of UK Parliament for Richmond Park & North Kingston, The Rt Hon. John Gummer, Lord Deben and Former UK Secretary of State for the Environment, and fund managers including France’s Axa Investment Managers and London-based Generation Investment Management. The letter to the ECB chief, written to him in his capacity as Chair of the recently-created European Systemic Risk Board, comes just weeks after a widely reported letter on the same issue was sent to Sir Mervyn King, Governor of the Bank of England. King replied to the letter saying there was “clearly scope for further evaluation of these issues”. The latest letter to Draghi notes that the ESRB was created to contribute to the prevention or mitigation of systemicrisks to financial stability. They say that the collective financial exposure of institutional investors to high carbon, extractive and environmentally unsustainable investments could become one such systemic major problem as policy changes and technology advance a transition to a low carbon economy. The investors say that the high levels of carbon intensive natural resources and power generation companies in indices such as the FTSE 100 in the UK and CAC 40 in France – where they represent as much as 20% of market capitalisation – mean that the large number of institutional index investors are locked into high carbon investment strategies.
Paul Simpson, CEO of the Carbon Disclosure Project, one of the letter’s signatories, said: “Overexposure to high carbon companies presents significant risks to investment portfolios as governments act to reduce greenhouse gas emissions and avoid dangerous climate change. Whilst the current economic woes of Europe present a short-term headache if we are to avoid a much larger hangover from our high carbon economy then regulators, stock exchanges and long-term investors must analyse the fossil fuel reserves on company balance sheets in order to better understand and reduce risk from high carbon investments.”