Investors urge governments to act on climate, including risk disclosure

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A group of 587 institutional investors managing over $46 trillion in assets have signed a new statement calling on governments to undertake five priority actions to accelerate climate investment before COP26, the 26th United Nations Climate Conference in Glasgow in November.   The statement, the 2021 Global Investor Statement to Governments on the Climate Crisis, was coordinated by The Investor Agenda, a group founded by Asia Investor Group on Climate Change, CDP, CeresInvestor Group on Climate ChangeInstitutional Investors Group on Climate Change, Principles for Responsible Investment and UNEP Finance Initiative.  According to the Agenda, the statement comes after “a month which brought more catastrophic weather events around the world, and the alarming predictions of the Intergovernmental Panel on Climate Change that without immediate, rapid and large-scale emissions reductions, limiting global warming to 1.5 degrees Celsius will be beyond reach. The risks this brings to the portfolios of asset managers and owners are enormous.” The statement urges governments to address the “gaps—in climate ambition, policy action and risk disclosure—[that] need to be addressed with urgency.”

To date, the statement has been signed by some of the world’s largest institutional investors and asset managers, with combined assets under management of over $46 trillion, representing an estimated 40% percent of all global assets under management, according to the Agenda.  The list of signatories includes State Street Global Advisors, the New York State Comptroller and CalPERS, but does not include BlackRock or Vanguard at this point.  Additional investors may continue to sign before COP26.

The statement maintains that if we do not meet the challenge of limiting global warming, “the world could heat in excess of 3-degrees Celsius this century—far beyond the goal of the Paris Agreement to limit the global average temperature rise to no more than 1.5-degrees Celsius, which scientists say is necessary to avoid the worst impacts of climate change.”  The statement encourages “all countries to significantly strengthen their Nationally Determined Contributions (NDCs) for 2030 and to ensure a planned transition to net-zero emissions by 2050 or sooner,” contending that the countries that set ambitious targets “will become increasingly attractive investment destinations. Countries that fail to do so will find themselves at a competitive disadvantage.”

According to the statement, in addition to addressing the “ambition gap” between current government commitments and the commitments necessary to achieve critical goals, government has a critical role to play in increasing access to disclosure of adequate information about how companies are “assessing and managing the risks and opportunities presented by climate change.” To those ends, the statement calls on governments to act in 2021 to take these five steps:

  1. “Strengthen their NDCs for 2030 before COP26, to align with limiting warming to 1.5-degrees Celsius and ensuring a planned transition to net-zero emissions by 2050 or sooner.
  2. Commit to a domestic mid-century, net-zero emissions target and outline a pathway with ambitious interim targets including clear decarbonization roadmaps for each carbon-intensive sector.
  3. Implement domestic policies to deliver these targets, incentivize private investments in zero-emissions solutions and ensure ambitious pre-2030 action through: robust carbon pricing, the removal of fossil fuel subsidies by set deadlines, the phase out of thermal coal-based electricity generation by set deadlines in line with credible 1.5-degrees Celsius temperature pathways, the avoidance of new carbon-intensive infrastructure (e.g. no new coal power plants) and the development of just transition plans for affected workers and communities.
  4. Ensure COVID-19 economic recovery plans support the transition to net-zero emissions and enhance resilience. This includes facilitating investment in zero-emissions energy and transport infrastructure, avoiding public investment in new carbon-intensive infrastructure and requiring carbon-intensive companies that receive government support to enact climate change transition plans consistent with the Paris Agreement.
  5. Commit to implementing mandatory climate risk disclosure requirements aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, ensuring comprehensive disclosures that are consistent, comparable, and decision-useful.”

Strong government policies, the statement contends, can be mutually beneficial. They can not only accelerate action to tackle the climate crisis, they can also help to “accelerate and scale up private capital flows towards the net-zero transition,” and “create significant investment opportunities in clean technologies, green infrastructure and other assets, products and services needed in this new economy. In turn, investors can use capital allocation and stewardship to support sustainable activities that generate jobs and economic growth, transition away from carbon-intensive activities and increase resilience.”

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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