How to help institutional investors support the UN Green New Deal

Tax breaks and co-investment could really swing investors behind the climate change fight.

One key and potentially enormous boost to future sustainable investment is missing from today’s otherwise welcome announcement by the United Nations to promote a Roosevelt-style Green New Deal for investment into renewable energy, clean technology, sustainable cities and deforestation prevention. That is the engagement of institutional investors to the cause. Pension fund investment alone is estimated to account for about a third of global stock market volume. That money is long-term, and in the current, post credit crunch financial climate, increasingly looking for rentable duration investments. Allocations to sustainability projects, be they clean tech, renewables or energy efficiency, and based on the right financial incentives from government, could almost certainly win the support of pension scheme members and politicians, provided they pass the proper fiduciary tests. Only the biggest and boldest of the world’s pension schemes have to date matched financial commitments to environmental investing, despite what many, including the UN, nowbelieve is an urgent imperative if we are to reduce carbon emissions by the 80% levels before 2050 proposed by the Inter-governmental Panel on Climate Change (IPCC). The rump of the world’s institutional investors are concerned that either the returns on environmental investment are uncertain or that it is not their job to be saving the planet. Both are shortsighted, and I think most investors on balance would agree. But they need support mechanisms from the authorities to enable them to move. I’m thinking aloud here, but one lever could be tax breaks on environmental investment. This could potentially work better than subsidies for the renewables industry – which have sometimes proved disastrously wasteful – if the collective research power of governments and the institutional investment industry identified where money could be best invested. Another idea is for co-investment between pension funds and governments and international bodies such as the World Bank, via informed and interested parties such as the International Finance Corporation (IFC).
Suggestions to this end will hopefully emanate from the forthcoming report by a group of the world’s biggest pension funds brought together privately by HRH Prince Charles, the Prince of Wales, and known informally as the P8 – an allusion to the G8 group of the world’s wealthiest nations. Responsible Investor recently revealed that they will shortly release an action plan on fighting climate change to be sent to global policy makers with the aim of lobbying for the best possible regulatory and financial environment that would enablepension funds to start using their financial muscle as long-term investors to increasingly take stakes in companies developing sustainable energy solutions. Hopefully, the United Nations will develop its thinking to identify institutional investors as potent partners in its Green New Deal, perhaps via the UN Principles for Responsible Investment. In the 1930s Roosevelt was dealing with an economic and social crisis in the US. By the 2030s we could be dealing with a global environmental crisis that will be much harder to fix if we don’t act now.