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How does climate investment get us to net zero emissions?

How does climate investment get us to net zero emissions?

The recent global lockdown has left an impression on many of us. But one that certainly made an impact was just how quickly the pandemic reduced carbon emissions globally. It was short term, and the economy had to get started again, but the pandemic has focused investors on the possibility of getting to net zero emissions one day soon.
There are several pillars to net zero, including decarbonisation, a net zero engagement strategy and investment in low carbon solutions, like alternative energy networks.
While there are always going to be different pathways to net zero for different countries and different sectors, investors may like to spend time thinking ahead about how their portfolio is going to look in the years ahead.

Climate investment: how is your capital going to work?

Climate investment is not only about how portfolios behave under different climate risk scenarios but also requires clear articulation from investors about how capital is going to work, on a sector by sector basis. Reporting to stakeholders on just what your fund or portfolio is doing to actively reduce carbon emissions (rather than just trying to mitigate them) is going to be important.

The drive to zero emissions will have to be a global one. At Prestige Funds our focus to date has been on funding the expansion of clean energy generation in the UK through our lending activity. But we are a small part of what will have to be a broader international effort.

Investors are going to start asking for more detailed reporting from fund managers. Larger investors, like CalPERS*, have already set out their store on this.

Net zero investment is going to change the world

The quest for net zero emissions is also going to change the world at many levels. According to the Global Commission on the Economy and Climate, low carbon growth could deliver economic benefits of USD 26 trillion by 2030**, something the Commission considers to be a conservative estimate.

US pension fund CalPERS sets out a four channel strategy in its Investment Strategy on Climate Change+:

  • Engagement: ensuring companies bring down their greenhouse gas (GHG) emissions
  • Advocacy: supporting policy and regulation that will in turn support the transition to a low carbon economy
  • Integration: bringing considerations of climate change risks (and opportunities) into investment decision making
  • Partnership: working with other investors and agencies to promote innovative research

CalPERS is just one of several major investors which are now pushing for mandatory climate risk reporting. Companies of all shapes and sizes are almost certainly going to be asking for much more detailed information on a company’s carbon footprint and what it is doing to mitigate that footprint.

As for Prestige Funds, part of our direct lending strategy in the last decade has been dedicated to assisting in the transition to a low carbon economy through the financing of clean energy. Here we feel we are making a positive impact in helping companies and farmers in the UK to reduce their own carbon footprints and become more reliant on low to zero carbon emissions.

Zero carbon can seem a far-off goal at times, but with some of the world’s largest investors and fund managers already flexing their muscles and taking their first steps towards achieving this, working together and investing intelligently, we can get there.

* Californian Public Employees Retirement Systems, https://www.calpers.ca.gov/

** https://www.wri.org/blog-series/the-26-trillion-opportunity

+ https://www.top1000funds.com/wp-content/uploads/2020/09/CalPERS%E2%80%99-investment-strategy-on-climate-change_Anne-Simpson.pdf