A group of global pension funds and investment managers want to clean up their portfolios and get them to net-zero. The group spans 16 countries, with 1,200 members, and controls over $40 trillion (that’s $40,000,000,000,000) in assets. How are they planning to do it, and can they actually get there?
GETTING THE FACTS STRAIGHT
First: who are these managers? This group of global pension funds and investment managers is the Institutional Investors Group on Climate Change (IIGCC). Its mission? To decarbonise, by way of moving the money.
Specifically: “to mobilise capital for the low carbon transition and to ensure resilience to the impacts of a changing climate by collaborating with business, policy makers and fellow investors.” It wants to ensure that public policies, investment practices and corporate behaviours reflect, incorporate and act on long-term risks and opportunities arising from climate change.
How? It does so by advising asset managers, according to a set of recommended actions, policies, collaborations, measures and methods to help them meet the net-zero goal by 2050. This ultimately aligns with the Paris Agreement, and the European Union’s goal of being climate neutral by 2050.
“Countries, cities and companies around the globe are committing to achieve the goal of net-zero emissions and investors need to show similar leadership,” said Stephanie Pfeifer, IIGCC’s chief executive officer.
WHAT DOES IT MEAN TO DECARBONISE?
Decarbonising is exactly what it implies: moving the global economy away from carbon. That is, coal, oil and gas. And we know that that’s no easy feat: the only reason why our use of fossil fuels has decreased is because of a global pandemic—which presented to the global energy market the biggest shock in the last 70 years. Even then, it didn’t decrease by that much. We need to be deliberate.
We know the future is fossil-free. A sustainable world won’t include coal, oil, or gas. Decarbonisation is the future. It presents significant benefits: it creates jobs, it boosts sustainable development, and there are real road maps being crafted towards a decarbonised future. And finance is indeed a big part of getting there.
“The investments made by our financial system today determine whether we will be able to keep temperature rises below the 1.5°C upper safe limit,” said Fran Boait, executive director of Positive Money. “Finance is currently funding warming of more than 4°C, which represents an existential threat not only to finance and the economy, but to life on earth.”
MOVING THE MONEY: DOES IT REALLY HELP?
With decarbonising, of course, there are many moving parts. But as Boait explained, because finance plays such an integral role in our economy, and because there’s a lot of money that needs to be moved, moving the money does help.
Here’s another way to understand it. James Conca, writing for Forbes, explains with the example of oil.
We need to replace internal combustion engines with mostly electric vehicles (EVs) charged with non-fossil fuel-generated electricity. Biofuels and hydrogen can help, but it’s hard to compete with oil. Our total future energy needs worldwide (if we use EVs charged cleanly) amount to about 45 trillion kWhs a year, which cost about $6 trillion a year. But we spend over $5 trillion globally on fossil fuel subsidies—which we could cut, and considering how using coal affects healthcare, replacing coal could save up to $800 billion a year. That means we could pay for this change.
But, Conca concludes: “it will take some serious financial management to accomplish. And who better than investment managers to do that.”
CAN INVESTMENT MANAGERS DECARBONISE THE WORLD?
If you’re feeling a little sus though, you’re not alone. In fact, there’s an entire Reddit thread tearing this piece of news apart. “Someone smelled money and they want to be the first to capitalise on the green energy,” one user writes. Unsurprisingly, many users are equally sceptical. “Oh no! The end of the world would have been bad for investments?” “Yeah any group of people who “manage” 40 trillion (presumably) dollars is absolutely a conglomerate of super villains.”
And perhaps they have good reason to doubt that these investment managers can decarbonise the world. A quick perusal of the IIGCC website presents some possibly alarming framing. “Working with policymakers, parliamentarians, ministers and other stakeholders,” it writes, “we ensure the investor perspective is at the heart of the conversation on climate change and sustainable finance policy.” “Our work helps inform, align and support investors in ultimately safeguarding and enhancing long term returns across their investments in listed equity and corporate bonds.”
So yes, while the group’s Net Zero Investment Framework sets out to help investors be the change, à la “[maximising] their contribution to achieving net zero global emissions by 2050”, maybe there’s reason to think that this entire initiative is more to protect their interests rather than protect the climate.
THE ANSWER?
We don’t know. The thing about decarbonisation is that it is necessary, but it’s not the be-all-and-end-all when it comes to climate solutions. Electrifying, or “renewable energy”-ing everything won’t fix the problem if we don’t question unfettered capitalism and the endless pursuit of growth, however green it is. What we need is a decarbonised economy that doesn’t look anything like the economy we’re in today.
Last month, more than 100 prominent economists wrote an open letter calling for decarbonisation, and this letter makes a few salient points. The economists say that we not only need to end the carbon economy but that we also need to build a fairer, more sustainable world in the process. They highlight that governments must actively phase out the fossil fuel industry, institutions of financial power must end their fossil fuel investments and funding, and people must advocate for a fairer economic system.
Nowhere on the IIGCC website is there a reflection of this desire to change the system. Perhaps moving the money will change the system—from inside out? But at the end of the day: whether you give these investment managers the benefit of the doubt doesn’t matter. The burden is on them to do the work.
What we can do, though? Keep being as loud as we can about where we want our money going, and putting the pressure on our political representatives to keep industries, including finance, in check.