More than 450 investors with over $41 trillion in assets have signed a statement calling for governments to strengthen emissions reductions policies ahead of the year’s biggest climate change conference.

The signatories of the 2021 Global Investor Statement to Governments on the Climate Crisis called on governments to undertake five priority actions before the 26th United Nations Climate Conference of the Parties (COP26) in November – actions necessary to meet the Paris Agreement goal of limiting global temperature rise to 1.5 degrees Celsius.

These include committing to a net-zero emissions target by 2050, incentivising private investments in zero-emissions solutions, removing fossil fuel subsidies, and ensuring Covid-19 economic recovery plans support the transition to net-zero emissions.

“Our ability to properly allocate the trillions of dollars needed to support the net-zero transition is limited by the ambition gap between current government commitments (as set out in Nationally Determined Contributions) and the emission reductions needed to limit global average temperature rise to 1.5 degrees Celsius,” wrote the statement, which was released on Thursday (June 10).

Nationally Determined Contributions (NDCs) refer to a country’s national emissions reduction goals.

POLICY-ENABLED INVESTING

Shin Furuno, AIGCC

Sound policies will allow investors to allocate their capital with greater confidence in achieving long-term returns, said Shin Furuno, senior manager of policy and programmes at the Asia Investor Group on Climate Change (AIGCC), one of the seven founding partners of The Investor Agenda, which organised the statement. 

"Ambitious, long-term and stable policy settings... will also improve [investors'] ability to assess the risks and opportunities associated with climate change (and invest accordingly, therefore improving market efficiency)," he told AsianInvestor.

One example is that robust corporate financial climate disclosure information, delivered by mandatory regimes, will allow investors to fully weigh and compare the relative risks associated with different assets, he said.

"Another example is how government subsidies for fossil fuels distort energy markets, making incumbent emissions-intensive fuels artificially more competitive against cleaner - and now often cheaper - alternatives."

The 457 signatories comprise some of the world’s largest institutional investors, which include asset owners with an Asia Pacific presence such as Aware Super, Caisse de dépôt et placement du Québec (CDPQ), Hesta, and Cathay Financial Holdings.

“In Australia, we have an incredible opportunity to attract global investment and draw on the more than A$3 trillion ($2.32 trillion) pool of superannuation savings to power a low-carbon transition. But investors need greater certainty provided by stable, long-term policy settings,” chief executive of superannuation fund Hesta Debby Blakey, said in a statement.

“If we can get a clear, timely path to net-zero, then superannuation funds like Hesta would have significant appetite to invest more in domestic renewable infrastructure and innovative cleantech opportunities,” she added.

Indeed, governments have a part to play in building up climate-friendly infrastructure, which investors are keen to allocate to.

"Clear mid-term targets for renewable energy production and investment in flexible grid infrastructure, coupled with market and regulatory reforms, will create the enabling environment and appropriate incentives for the efficient deployment of available renewable energy technologies and greater capital allocation to zero-emissions energy solutions in the near-term," Furuno said.

PRESSING ISSUE

An increasing number of institutions have committed to reducing carbon emissions globally. On Wednesday (June 9), the Monetary Authority of Singapore (MAS) said it would allocate $1.8 billion to invest into climate-related investment opportunities.

Asset owners in Asia Pacific are particularly concerned about carbon emissions. A whitepaper released in March by Mercer and GIC found that most asset owners pointed to climate change risks and opportunities as a top global investment trend.

According to the World Resources Institute, 59 countries, which contribute 54% of greenhouse gas emissions, have committed to net-zero targets, meaning that they have pledged to remove the same amount of carbon they release into the atmosphere.

However, "significant climate policy and finance gaps remain in almost all nations, and the world is currently not on a trajectory to meet the objectives of the Paris Agreement," the statement read.

The Paris Agreement goal requires global emissions to nearly halve by 2030 and each country - considering its national circumstance - will need to do its fair share, Furuno said.

"The recent International Energy Agency Net Zero 2050 Scenario suggests​ that annual investment in clean energy will need to triple by 2030 to around $4 trillion to put the world on the pathway to reaching net zero emissions by mid-century... These levels of investment are possible, but will require stronger government policies developed in partnership with investors," he said.

"All evidence is that if it can be achieved, this investment will create significant new economic growth and jobs across all nations."