CalPERS, AXA move money towards the Paris Climate Agreement

Andrew Kelley for Ceres
2018 Investor Summit on Climate Risk Jan. 31 at the United Nations in New York. 

How can institutional investors seize the market opportunities promised by the transition to low-carbon energy? Pension leaders recommend four key actions to help move towards the goals of the Paris Agreement: increased investment in renewables; corporate engagement; investor disclosure; and policy advocacy.

These actions debuted Wednesday within an Investor Agenda issued by investors and state and city pension fiduciaries, as more than 450 investors, companies and capital market leaders met in New York at the eighth biennial Investor Summit on Climate Risk, held by Ceres, the United Nations Foundation and the United Nations Office for Partnerships.

"As investors committed to building a lower carbon economy, we know the future holds enormous opportunities, even as it presents risks," New York State Comptroller Thomas DiNapoli said at the summit. "Our call is for all investors to join in the global effort to rein in global warming through smart choices that put a premium on sustainability."

The Investor Agenda included partner organizations such as the Asia Investor Group on Climate Change, CDP, the Investor Group on Climate Change, Institutional Investors Group on Climate Change, Principles for Responsible Investment and the UNEP Finance Initiative, which work with more than 1,800 institutional investors combined.

Among the announced investments: The New York State Common Retirement Fund is putting $2 billion into a low-emissions equities index, raising the fund's sustainable investments portfolio to $7 billion. This follows the footsteps of New York City Comptroller Scott Stringer, who earlier in January said that the city is divesting its pension funds from fossil fuels.

AXA, the world's largest insurer, is targeting $14.7 billion in low-carbon investments by 2020, and La Caisse de dépôt et placement du Québec Canada's second-largest pension fund will raise its low-carbon investments by 50 percent by 2020 (that's more than $8 billion).

Bloomberg New Energy Finance estimates that $1 trillion of investment is needed in clean energy by 2020 to keep global warming below 2 degrees Celsius compared to pre-industrial levels. 

Peter Damgaard Jensen, CEO of Danish pension fund PKA, said at the summit that its investments on renewable energy have been paying off. PKA currently has $3 billion (7 percent of its assets) dedicated to green bonds, sustainable forestry and offshore wind power, which has produced 2.3 GW of energy and enjoyed a 13 percent return on investment.  

"In 2020, we hope to have 10 percent of investments [around $5 billion] in this area," Jensen said. The organization also has divested from coal companies.

"Since 2015 … the list of these coal companies fell 50 percent compared to the stock market," he said. "Statistics show that divesting from the most vulnerable companies could be a good decision."

Rules of engagement 

Besides divesting in fossil fuels and phasing out investments in thermal coal, investors need to engage directly with companies to urge them to integrate climate change into their strategy and governance — another key part of the Investor Agenda. 

"We need investors in the room with us," Mindy Lubber, president of Ceres, a nonprofit sustainability advocacy group, told GreenBiz. The second and third items of the agenda, corporate engagement and disclosure, extend the work past finance and into relationships with company executives.

The Investor Agenda scales action on Climate Action 100+, a five-year initiative launched in December to get investors to engage the world's largest corporate greenhouse gas emitters on climate change. To date, 256 investors with nearly $30 trillion in assets under management are signed up for the Climate Action initiative. (As a comparison, the world's GDP was about $80 trillion in 2017.)

The investors, which include AXA, BNP Paribas, HSBC Global Asset management, New York City Pension Funds and CalPERS, believe that building relationships with carbon-intensive firms such as ExxonMobil, BP, Shell and Panasonic will influence other sectors and industries. Each investor has agreed to engage with at least one company at the boardroom or executive level to discuss governance, disclosure and action on climate change.

"Disclosure is an important focus in the Investor Agenda," California Controller Betty Yee said at the summit. She said that the agenda and the Climate Action 100+ initiative both encourage investors to report in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), which voluntarily asks companies to voluntarily integrate climate strategy into mainstream financial disclosure within five years.

"Investor disclosures increase the credibility of investor demands for more consistent, comparable and reliable disclosure of climate-related information of the companies in which they invest," said Yee, who announced the 100+ initiative in December.

These actions by global investors and U.S. state institutions shows that momentum is shifting towards long-term renewable energy opportunities in the financial world, helped along by concrete steps for investors to take and to communicate with even the most polluting industries.

"The gap between European and U.S. investors is narrowing" on their perception of climate risk, said Fred Samama, deputy global head of institutional and sovereign clients at Amundi, Europe's largest asset manager.

"For 20 years you had only NGOs tackling climate change; then five years later you had leaders in Europe, like Allianz, and now it's shifting towards the net level where you have a critical mass of investors all over the planet," he said. "Now we're at Stage 3 of investment."

Stage 4 is when divestment from fossil fuels and opportunities in the clean economy will be mainstream, he said. 

But to make that shift, "100 percent of the market has to do their homework."