Investor leadership on climate change An analysis of the investment community’s CLIMATE SERIES role on climate change, and snapshot of recent investor activity. CARING FOR An investor initiative in partnership with UNEP Finance Initiative and the UN Global Compact 2 3 Contents Foreword 5 Preface from Chair of the PRI 6 Introduction 8 1. Beyond business as usual 10 An investment opportunity 10 The long-term investment case 10 The problem with business as usual 10 About the United Nations Global Compact A leadership role for investors 11 Launched in 2000, the United Nations Global Compact is a both a policy platform and a practical framework for companies that are committed to sustainability and responsible business practices. As a multi-stakeholder 2. Allocating capital to low-carbon opportunities 12 leadership initiative, it seeks to align business operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption and to catalyze actions in Responding to the financial crisis 12 support of broader UN goals. It is the world’s largest voluntary corporate citizenship initiative, with over 6,500 Governments as investors 13 signatories based in more than 130 countries. Visit www.unglobalcompact.org. Developing new asset classes 14 About the Principles for Responsible Investment What more could investors be doing? 14 The Principles for Responsible Investment (PRI) provide a framework for helping investors build environmen- tal, social and governance considerations into the investment process, thereby achieving better long-term 3. Building climate into investment processes 16 returns and more sustainable markets. The initiative was convened by UNEP FI and the UN Global Compact, and launched in 2006 by former UN Secretary-General Kofi Annan. The six Principles of the PRI Initiative The need for leadership from the top of the value chain 16 were developed by, and for, institutional asset owners such as large pension funds and fund managers. The initiative now has over 500 signatories made up of financial institutions from over 32 countries. It is Pressing for disclosure 19 delighted to contribute to the Caring for Climate series with this report. Improving research 19 The Principles themselves, a full list of signatories and more information can be found at www.unpri.org What more could investors be doing? 22 About the United Nations Environment Programme Finance Initiative 4. Shareholder leadership 24 UNEP FI is a unique public-private partnership between UNEP and the global financial sector. UNEP FI works with banks, insurers and investment firms, and a range of partner organisations, to develop and promote link- Shareholder governance power 24 ages between sustainability and financial performance. Through its comprehensive work programme encom- Further influence 25 passing research, training, events and regional activities, UNEP FI carries out its mission to identify, promote and realise the adoption of best environmental and sustainability practice at all levels of financial institution Energy efficiency measures 27 operations. More information: www.unepfi.org What more could investors be doing? 29 Authors: Dr. Craig Mackenzie and Francisco Ascui with additional research by Dermot Hikisch. Editor, Caring for Climate Series: Cecilie Arnesen Hultmann 5. Investor engagement with public policy 30 Designer: Tannaz Fassihi Engagement with international policy 30 Engagement with regional and national policy 32 Disclaimer Institution building 33 The views expressed in this publication are not necessarily those of the United Nations (including the UN What more could investors be doing? 34 Global Compact Office the UN Environment Programme and the Principles for Responsible Investment). The inclusion of company examples in this publication is intended strictly for learning purposes and does not con- stitute an endorsement of the individual companies by the United Nations. The material in this publication may 6. Conclusions 36 be quoted and used provided there is proper attribution. Methodology and bibliography 37 4 5 Foreword Caring for Climate (C4C) was introduced by United Nations Secretary-General Ban Ki-moon in July 2007. The Secretary-General challenged Global Compact participants to exercise leadership on climate issues by: ■■ making climate change a leadership issue for strategy and operations; ■■ setting emission reduction targets and exploring low-carbon technologies; ■■ supporting public policy efforts aimed at achieving low carbon economies; ■■ sharing experiences and publicly disclosing progress made on an annual basis. Less than two years on, Caring for Climate has emerged as the world’s largest and most diversi- fied business engagement platform on climate, with more than 350 corporate signatories in over 60 countries. Less than seven months before the crucial UN Climate Change Conference in Copenhagen, we are releasing several new research studies and reports, the Caring for Climate Series, to offer a range of perspectives on the role of business and investors in tackling climate change. It is our hope that the findings of the C4C Series will inspire more businesses to make climate change a priority issue, so that policy makers will feel more confident that business is ready to be part of the solution. The good news is that businesses from all regions and sectors have already started their journey towards energy efficiency, innovation and GHG emission reductions. Indeed, in many instances businesses have embraced climate action as an opportunity to drive efficiency and to gain competitive advantages, even where Governments have not yet taken action. Caring for Climate participants recognize that climate change is not only an environmen- tal issue. Around the world, businesses are beginning to feel the economic impacts as well. Consequently, some have made the connection between mitigation and adaptation, putting in place long-term measures to address not only emissions, but also food and water concerns and related natural resource issues. In fact, this drive towards energy efficiency and carbon reduc- tions, combined with a proactive management of systemic climate risks, is defining a new level of environmental stewardship. Long-term investors, asset managers and analysts are also begin- ning to integrate these considerations into investment analysis and decision-making. The bad news is that, despite encouraging and inspiring leadership, the number of busi- nesses that are actively addressing climate change is far too small. Too many are still sitting on the fence waiting for others to act first. What is needed now is Government leadership to produce a clear incentive structure that fa- vors good performance and a global deal on climate change that creates certainty. Governments should be confident that change is possible. If Caring for Climate is any indication, business and investors certainly have the capacity and understand the compelling case for taking action. We therefore hope that the C4C Series will give policy makers and negotiators the confidence and inspiration to bring the Copenhagen Climate Conference to a successful conclusion. Claude Fussler Georg Kell Programme Director Executive Director Caring for Climate United Nations Global Compact United Nations Global Compact 6 7 Preface Glossary For many institutional investors, including many large pension funds and asset managers, ■■ ACSI Australian Council of climate change is rapidly becoming as relevant a factor in an investment decision as more Superannuation Investors traditional financial elements such as liquidity or competition. ■■ BINGOs Business and Industry NGOs As this report shows, there are a number of powerful drivers underpinning this change, and its extent is not restricted to purely long-term investors. Across the world, asset owners, ■■ CDM Clean Development Mechanism investment managers, researchers and other participants in the global investment commu- ■■ CDP Carbon Disclosure Project nity are increasingly aware they must take climate change into account as part of a holistic ■■ CMIA Carbon Markets & Investors Association approach to fiduciary duty. This report explores how investors are putting that awareness into practice in their daily business. ■■ COP Conference of Parties to the UNFCCC While much is being done, the clear message of this report is that more efforts are ■■ EAI Enhanced Analytics Initiative needed. Despite the tough economic conditions, investors urgently need to act on climate ■■ ESG Environmental, social and governance change if they are to protect their investments over the long term and capitalize on the op- portunities created. ■■ EU ETS EU Emissions Trading Scheme There are four clear challenges for investors: ■■ GHG Greenhouse gases ■■ To increase capital flows into projects that help mitigate and adapt to climate change; ■■ IEA International Energy Agency ■■ To improve the way investment processes incorporate climate change; ■■ IFSA Investment and Financial Services Association ■■ To use their influence as shareholders to improve the carbon performance of the ■■ IGCC Investor Group on Climate Change companies in which they invest; ■■ To engage with public policy frameworks to ensure they catalyse the transition to a ■■ IIGCC Institutional Investors Group on Climate Change low-carbon economy. ■■ INCR Investor Network on Climate Risk ■■ IPCC Intergovernmental Panel on Climate Change In short, investors must, to borrow Warren Buffett’s memorable phrase, “build the ark” and ensure that mainstream capital markets produce a sustained and successful response to ■■ JI Joint Implementation climate change. ■■ ppm Parts per million atmospheric concentration of CO2 equivalent ■■ PRI Principles for Responsible Investment ■■ UNEP FI United Nations Environment Programme Finance Initiative ■■ UNFCCC United Nations Framework Convention on Climate Change Donald MacDonald Chair of the Principles for Responsible Investment Initiative and Trustee, BT Pension Scheme 8 9 Introduction Climate change is a major source of opportu- ment community is actively engaged in the nity and risk for investors. The International process. As this report argues, this is not just Energy Agency (IEA) estimates that around a matter of business as usual; leadership is US$10 trillion must be invested by 2030 in needed within the investment community. low-carbon technologies if we are to achieve The first chapter of this report looks at the 450ppm CO2 stabilization level accepted the ESG movement in the context of climate as moderately safe.* That is only one estimate, change and explores the reasons behind (many other such estimates can be found in it. The following chapters set out distinct other parts of the Caring for Climate series of leadership roles for investors arising from the reports), but it is clear the amount of capital climate challenge. needed to achieve a low-carbon economy is This report aims to take a snapshot of colossal, and many argue the lion’s share some of the activities already going on in must come from private funding sources**. these areas and highlight best practice where The good news is that even such large possible. It should be read in conjunction sums of money are within the long-term with its sister publications that make up the capacity of the financial sector, as long as the Caring for Climate series, published by the appropriate public policy incentives are in United Nations Global Compact. place. Indeed, the transition to a low-carbon economy will be a huge opportunity for * International Energy Agency 2008 World Energy Outlook. investors. ** UNFCCC (2008), Investment and Financial Flows to Address Climate On the other hand, climate change Change, Geneva, Switzerland. presents risks to investors. In the short term, carbon pricing will change the cost struc- ture for many companies and the relative competitiveness of carbon-intensive business sectors. Over the long term, if unchecked, the changing climate could do severe damage to the economy, undermining the ability of pen- sion funds and other long-term investors to finance their liabilities. A growing number of large institutional investors accept these realities and are acting on them. The widespread adoption of the UN- backed Principles for Responsible Investment reflects the perception that climate change and other ESG issues must be addressed by investors. It is becoming increasingly clear that the world will be effective at mitigating and adapting to climate change only if the invest- 10 11 1. Beyond business as usual simply need a carbon price – they need a A leadership role for investors price that is sufficiently high and sustained If investors want to play a role in mitigating to justify the kind of large scale low-carbon climate change risk – for their clients, their investments required. Policy-makers need beneficiaries and for society – it is clear from An investment opportunity long-term economic implications of climate active support from the international the case studies and findings in this report that As climate change has steadily risen up the change to date, concludes that some of the investment community to increase the they must go beyond their business-as-usual public agenda in recent years, so has the call scenarios included in the UN’s third Intergov- chances of achieving the necessary frame- roles. Doing so will be necessary if they are to for investors to provide capital in the service ernmental Report on Climate Change have works. fulfil their fiduciary duty over the long-term. of climate change mitigation and adaptation. the potential to trigger a depression-level ■■ It assumes capital markets will be efficient Leading investors are focusing on four Providing capital comes naturally to inves- economic collapse, wiping 20% permanently at pricing risk and allocating capital. The broad areas beyond business-as-usual: tors – it is their vocation – and as long from global GDP by 2100.** The fourth IPCC recent financial crisis indicates that capital as the risk-adjusted returns are available, report concludes that outcomes could be markets are not always efficient at pricing ■■ Increased allocation of assets to climate investors will be ready to provide capital for even worse than previously thought.*** While complex risks. There are many uncertain- change mitigation and adaptation projects this purpose. This has certainly been the case these conclusions could be seen as highlight- ties around fundamental climate science, (explored in chapter 2). over recent years. In 2007 alone, an estimated ing pessimistic scenarios within a range of likely pathways of technological develop- ■■ Leadership in building climate change into US$204 billion of finance was made available possibilities, they are widely considered a fair ment, and the trajectory of international investment processes and pricing climate for investment in renewable energy projects indication of the scale of potential risks fac- climate policy. All this makes climate risk risk (explored in chapter 3). of various kinds.* ing long-term investors. pricing very complex. Investors need to ■■ Shareholder leadership of corporate climate There is now a huge array of low-carbon These risks are systemic. In other words, take responsibility if they are to ensure change activity (explored in chapter 4). investment opportunities. These include: they will have impacts across the entire econ- capital markets respond efficiently to car- ■■ Leadership in the climate change policy renewable energy technologies that use omy. This will make them difficult to hedge bon prices and other policy instruments. process and institution building (explored solar, wind, tidal, wave or geothermal power; or avoid. As we have recently been reminded, ■■ It will need to deliver new structures in a in chapter 5). microgeneration and smart grids; carbon- depression-type economic events affect all as- brief timeframe. Successful climate change efficient buildings; low-carbon transport set classes, including supposedly safe havens mitigation will require the private sector Some of the actions described here will not technologies and systems; and sustainable and diversification plays. to create new institutions and support new deliver immediate outperformance for invest- forestry and land use changes. Successfully While there are some sectors of the structures, such as the Clean Development ment portfolios. The returns they deliver tend exploiting these varied opportunities requires economy that might benefit from catastroph- Mechanism (CDM). In some cases, these to be long-term and dispersed. Nevertheless, a range of different investment approaches, ic climate change, most would not. Pension must grow from small start-ups to global they are critical to the ability of pension from venture capital and private equity to funds, particularly large pension funds, are giants in a very short time. As well as pro- funds and other long-term investors to meet infrastructure finance and property invest- universal investors****, and they are so large fessional and independent central govern- their liabilities. ment, as well as the large-scale investment that they tend to have long-term investment ment regulation, this will require excep- activity taking place in the listed bond and exposure to the whole economy. This makes tional leadership and focus from investors. * See chart on p.12 ** Nicholas Stern, The Economics of Climate Change: the Stern equity markets. it difficult for them to avoid systemic risks ■■ It forgets that equity investors are not Review. 2007 Such a diverse field of opportunity cannot of the kind that unmitigated climate change merely providers of capital – they are *** International Panel on Climate Change, Fourth Assessment Report be fully captured by this short report. Our will impose on them. As a result, prudent shareholders and therefore owners of 2007 **** Hawley, J. & Williams, A. The Rise of Fiduciary Capitalism: focus is on equity investment, though we pension funds have good reason to pursue companies. As we explore in detail in How Institutional Investors Can Make Corporate American More also provide case studies illustrating many of cost-effective strategies to support climate chapter 4, they have a unique position of Democratic.2000 ***** See, for example, arguments in Freshfields 2005 and Mackenzie these other areas. Other aspects are covered change mitigation and adaptation. Argu- leverage over the entities that, in one way 2006 in more detail by other reports in the Caring ably, this may even be part of their fiduciary or another, are accountable for most of our for Climate series. duty.***** carbon emissions. The long-term investment case The problem with business as usual For long-term investors such as pension Investors might be tempted to think they funds, climate change is a major source of need not make any special efforts on climate systemic risk that could undermine their abil- change. That they can simply wait for policy- ity to meet their liabilities. For these inves- makers to create incentives for investment tors, the fiduciary case for action on climate in low-carbon opportunities and then exploit change is compelling. them by repricing risks and reallocating capital Pension funds have to meet liabilities accordingly. However, there are a number of far into the future. A 20-year-old employee problems with this business-as-usual approach: enrolled in a defined benefit pension scheme is likely to be receiving pension payments ■■ It assumes policy-makers will deliver in 60 years time. Over these time horizons, the appropriate carbon pricing regimes. climate change has significant potential to However, given the array of geopolitical affect the global economy. The Stern Review, and sectoral interests involved, that is not probably the most influential report on the a foregone conclusion. Investors do not 12 13 US $27.3 bn 2. Allocating capital to low-carbon US $28 bn the role of governments in this market. New build asset finance investment US $24.2 bn US $23.9 bn US $23.5 bn Q1 2004 - Q4 2008 opportunities The crisis in the banking sector also means US $20.5 bn that credit for asset finance projects such as US $17.9 bn wind farms is much more restricted. A de- US $16.6 bn US $17 bn cline in funding for some kinds of renewables The flow of new investment into areas such To an extent, this kind of investment can projects is evident in data for 2008. (see chart, US $11.7 bn US $11.7 bn as clean tech and renewable energy infra- be seen as a business-as-usual investment as right) US $8.6 bn structure projects is vital to meeting the it allocates capital into projects with market Ordinarily, a temporary reversal of this US $6.7 bn US $8 bn US $7 bn challenge of climate change. Perhaps the returns. Low-carbon technologies, particu- kind might be considered disruptive but US $4.8 bn US $6 bn US $3.8 bn US $3.1 bn most obvious role for investors is to put new larly when supported with carbon pricing perhaps not of long-term concern. However, US $2.2 bn money into projects that both help prevent or subsidies, can deliver the kind of risk- in order to successfully mitigate the risks of climate change and exploit attractive growth adjusted returns that make them attractive to climate change, a trajectory of very rapid opportunities. investors. As a result, investors might think growth in investment in low-carbon energy The IEA estimates that around US$45 that no special leadership is required of them. supply is required – reaching US$500 bil- Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 trillion will be needed to develop and deploy However, many investors are yet to explore lion a year by 2020.* Without this growth in new, clean technologies between now and these opportunities. As with any other new investment, it is extremely unlikely that the 2050.* Many billions of dollars are already asset class, pioneers are needed to beat a path necessary GHG stabilization levels will be flowing into this low-carbon industrial revo- for others to follow. achieved. We cannot afford a fall in levels of Source: New Energy Finance lution. In 2007, an estimated US$204 billion investment in this sector. Note: Includes asset finance of new build large scale renewable energy projects (does no cover acquisi- was made available for investment in renew- Responding to the financial crisis The current financial crisis, therefore, tions and refinancing). Grossed-up and buffered values are based on disclosed deals able energy projects (see chart). It is too early to assess the full effects of the makes investor leadership even more vital Pension funds play an important role 2008/09 financial crisis on capital allocations than before. If the banking sector is unable to in providing this capital. The green fund to climate change mitigation and adapta- provide capital, other sources of capital need (detailed in the box below), set up by the larg- tion, but it is already clear that it will have to step forward. Pension fund collaboration to invest in est public pension fund in the US, is a good major consequences. In particular, the crisis New kinds of credit finance instruments climate change mitigation example. is reducing the availability of capital for low- such as climate bonds may provide a vehicle In October 2007, ABP and Pensioenfonds Zorg en Welzijn * IEA Energy Technology Perspectives 2008 carbon investment projects, and enhancing for this (see box on p.15). There also ap- became cornerstone investors in the Ampère Equity Fund, pears to be an appetite among institutional committing themselves to invest up to €0.5 billion in the investors for stepping up their investment in development, construction and operation of sustainable renewables, in spite of the global recession. energy projects. US $204.9 bn CalPERS: investing in clean Total transactions in sustainable energy, 2007 technology products. A recent survey conducted by DB Climate Evelop, the sustainable project developer of Econcern, Change Advisors and New Energy Finance of CalPERS is the largest public pension will realize most of the projects, which include wind parks 100 institutional managers and asset owners, US $148.4 bn fund in the US. Through its AIM pro- on land and at sea and biomass power stations in various together representing more than US$1 trillion gram, it has committed US$1.1 billion Western European countries. The first project financed by of invested assets, found that 49% expect to to building a best of breed, diversified the Ampère Fund was the Koegorspolder wind farm. With increase their exposure to the renewables sec- portfolio of clean technology-focused a capacity of 44 megawatts, this is the largest operational tor, with most of the rest maintaining current US $84.5 bn investments. onshore wind farm in the Netherlands. exposure. US $56.6 bn All projects financed by the fund are expected to generate US $50.1 bn The fund has made investments in areas such as alternative and renew- Governments as investors both a long-term predictable cash flow and an attractive US $23.4 bn able energy, water technologies, The other major implication of the financial yield on investment. In comparison with conventional power US $19.8 bn US $19 bn US $9.8 bn US $5.3 bn US $7.1 bn advanced materials, and air purification crisis for climate change investment relates stations, these sustainable power stations reduce CO2 technologies. to the role of governments. One aspect of this emissions by 1,500,000 per year. is the emphasis given to low-carbon invest- This allocation of capital has helped The Ampère Equity Fund was developed out of the need for ments in government stimulus packages. support the creation of a number of a suitable source of finance for the existing Evelop project For example, around 10% of the US stimulus Public markets Corp RD&D Government RD&D Total Company Investment Re-invested Asset finance Small scale projects Total Company Investment M&A/MBO Total deals portfolio. Evelop has worked with ABP and Pensioenfonds VC/PE innovative products that are helping package unveiled by President Obama in tackle climate change. For example, Zorg en Welzijn for more than a year to create a custom- March 2009 is being allocated to low-carbon through its partner NGEN venture capi- made financial and legal construction for the fund. The investment, including US$33 billion to “green tal, CalPERS has holdings in Konarka investment criteria are set out in a mandate. If a project the country’s electricity supply”. technologies, the creator of Power meets the conditions, the fund will invest in it in the form of The increased prevalence of public money Plastic®. This is an inexpensive, light- taking an equity stock. in the markets has also provided an incentive weight and flexible substance that can for governments and investors to interact on (Source: New Energy Finance) be embedded in devices and buildings The independent management of the Ampère Fund has a much greater scale. Investors can provide ** note: Grossed-up values based on disclosed deals. Adjusted for reinvestment. Geared re-investment and converts light to energy. been delegated to Triodos Bank because of its longstanding assumes a 1 year lag between VC/PE/Public Markets funds raised and re-investment in projects. Figures expertise in sustainable energy financing. marked * are based on industry estimates from various sources. * New Energy Finance, Global Futures 2009. New Energy Finance, Global Trends in Sustainable Energy Investment 2008 14 15 VC and PE invested in companies a leverage to projects co-financed by govern- climate policy negotiations proceed more US $9 bn nd projects, Q1 2004 - Q4 2008 ments, or governments and investors can slowly than anticipated, or if (as with the EU Climate bonds US $8.3 bn US $7.8 bn share risks in investment projects. ETS) there are problems with policy design, or US $7.6 bn The idea of a climate bond is an extension of the green bond concept. US $7.2 bn Governments also have an important role if currently promising renewables technolo- US $6.9 bn Green bonds are issued by a government or corporate entity in order to to play in deploying Public Finance Mecha- gies fail in the marketplace, then investors raise the finance for an environmental project. The issuing entity guaran- US $6.1 bn nisms (PFMs) which enable much greater may not see the returns they were hoping for. tees to repay the bond over a certain period of time, plus either a fixed or US $5.6 bn investment activity by the private sector. Ex- For fiduciary investors such as pension funds, US $5.2 bn US $5.1 bn variable rate of return. perience with a number of different models investment in low-carbon opportunities must US $4.3 bn of PFMs shows that a small amount of public be accompanied by a proper evaluation of Climate bonds would be issued by governments to raise finance for US $3.7 bn US $3.5 bn funding can leverage much larger amounts these risks. Leadership in investing in new investments in emission reduction or climate change adaptation. They of private sector investment, with leverage low-carbon initiatives must therefore be tem- could be guaranteed by developed country governments to minimize the US $2.8 bn US $2.7 bn ratios ranging from 3 to 15:1.** PFMs include pered with appropriate caution. risk for investors and maximize their capacity to raise climate finance. They could be repaid out of general taxation, overseas development as- US $1.7 bn government credit lines and loan guarantees US $1.3 bn for project financing and R&D grants for sistance, proceeds from auctioning emission allowances in cap-and-trade US $0.9 bn ** UNEP/SEFI (2008) Public finance mechanisms to mobilise invest- US $1 bn US $0.5 bn early-stage technology development. The ment in climate change mitigation schemes, returns on investment of some of the bond proceeds in low- leverage offered by PFM instruments will be *** IEA (2008) World Energy Outlook carbon technologies, the sale of carbon credits under a post-2012 climate particularly important in the downturn. change agreement, or a combination of these. The Executive Secretary of the UNFCCC, Yvo de Boer, has expressed sup- Developing new asset classes port for the idea of climate bonds. Q1 2004 Q2 2004 Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Another opportunity for leadership arises with regard to unconventional asset classes such as sustainable forestry, energy-efficient (Source: New Energy Finance) property portfolios and CDM projects. The Note: Includes total invested by VC and PE players in the clean energy and clean technology industry (in support of early adopters helps these new projects as well as companies). Grossed-up and buffered values are based on disclosed deals. areas grow in capacity and scale. Again there are some pension funds that are pioneering investments in these areas (see box). ATP: investing US$800 million in clean tech, What more could investors renewables and forestry be doing? The Danish public sector pension fund ATP is one of If the global climate policy process is success- Europe’s biggest pension funds, with US$64 billion in ful, we can expect rapid growth in incentives assets. It recently announced US$400 million of invest- for investment in low-carbon solutions. If ment in a global renewable energy fund run by Hudson carbon prices rise to the US$180/tCO2e that Clean Energy Partners. The fund will focus on solar, the IEA estimates will be required by 2030 to wind, hydro, biofuels and biomass in Europe and the achieve a safe 450ppm stabilization level,*** US. ATP has made clear that this decision is based on low-carbon investment opportunities will expectations of good risk-adjusted invested returns. But clearly become attractive to investors. as ATP’s Chief Executive Officer Lars Rohde has said, the In advance of this, it makes sense for investment will also “give us direct access to brand-new investors to prepare themselves for exploiting knowledge about climate-related technologies – unique these opportunities. There may be particular knowledge that will be useful in our future investments.” rewards for those who develop knowledge of Alongside this large renewables investment, ATP is also these new asset classes and investment op- channelling an additional US$400 million into a pro- portunities at this early stage. In practice, this gramme of sustainable forestry purchases. The fund’s means that asset owners should seek to make first investment was a purchase of 38,000 hectares pilot investments in new asset areas in order of forest in New York State. The fund will only hold to gather experience and intelligence about directly-owned forests that are certified by the Forest the technological, physical and regulatory Stewardship Council. This will mean that the fund will risks involved. This also means that, if a new focus investment in forests in developed economies for wave of national and global climate policy the time being. As with its clean tech investments, ATP instruments come into force, investors will believes that forestry is a promising asset class offering be able to scale up their investments ahead of relatively high returns and diversification opportunities.* the pack confidently and safely. Confidence and safety are important. If * www.responsible-investor.com 16 17 3. Building climate into investment processes The recent financial crisis has thrown a spotlight on how investors make decisions. ABP and APG: an asset owner Risk management processes, research and empowering its manager to reporting have all been widely discussed in act the public arena. This chapter explores how APG Asset Management is a wholly climate change is being built into day-to-day owned subsidiary of the Dutch educa- business by organisations throughout the tion and government pension fund ABP. investment chain. Established in March 2008, APG cur- As we have seen, in order to mitigate rently has €173 billion (1 March 2009) climate change, it is vital that investors al- under management. locate large amounts of capital to low-carbon technologies rapidly and efficiently – US$10 ABP first started considering ESG is- trillion by 2030, US$45 trillion by 2050, on sues such as climate change in the late IEA estimates. This requires them to price the 1990s. During that time, the pension comparative risks and returns of investment fund began research initiatives explor- opportunities accurately, and respond quickly ing the potential impacts of sustainabil- to changes in public policies, scientific under- ity issues on its investment portfolio. standing, and technological advances. To the At the end of 2006, a formal commit- extent that investors fail to do this, capital ment was made in the organization’s will be misallocated, with the effect that cli- three-year Strategic Investment Plan mate policy will be blunted, and companies to integrate ESG factors as widely as will receive unhelpful signals* about where to possible across the whole portfolio. focus their activities. By identifying ESG issues as a high It is possible that the capital markets are priority, ABP has sent a clear message not as ready as they might be to price climate to its asset manager to act accordingly. change risks efficiently. Part of the problem is APG Asset Management does a con- that the risks associated with climate change siderable amount of work on climate are complicated and subject to uncertainty of change within its investment portfolio. three main kinds: Climate-related risks and opportuni- ties are considered in all relevant ■■ Scientific uncertainty. How fast will the cli- investment decisions, across all asset mate change? Where will the most severe classes of the ABP portfolio. effects be felt? ■■ Technological uncertainty. Which technolo- Investments that APG has made in cli- gies will emerge as the most cost-effective mate change solutions include carbon at reducing emissions? trading in the EU Emissions Trading ■■ Policy uncertainty. What shape will climate Scheme, Clean Development Mecha- policy eventually take? How effective will nism projects, a €250 million clean it be? tech private equity mandate, a €250 million dedicated renewable energy The need for leadership from the infrastructure fund, landfill gas projects top of the value chain in the US, ethanol production in Thai- The burden of reducing the three areas of land and energy efficiency in China. uncertainty described above does not lie APG’s Responsible Investment Policy primarily with investors, but with scientists, is in alignment with the PRI. As a PRI high tech entrepreneurs, and policy-makers signatory, APG has benefited from respectively. However, investors have a role collaborating with a network of peers, to play in ensuring they themselves are well sharing resources and having greater briefed on the implications of the latest cli- market influence. mate science, technology and policy, and that they can analyse those investment implica- tions effectively. This is mainly a challenge 18 19 for financial analysts, as well as sell-side ■■ Work with managers to ensure that the brokerages and the buy-side asset manage- Fonds De Reserve: the broker commission associated with their Deutsche Asset Management: ment houses that employ them. But it is also development of a share trades is allocated in a way that building climate change into a challenge for the investment value chain as comprehensive approach to rewards high-quality stock broker research its investment processes and a whole. environmental issues in this area. asset allocation. The investment industry can be seen as In response to the challenge of climate Since its first investments in 2003, the a value chain, with asset owners (such as If the investment industry value chain does change, Deutsche Asset Management integration of ESG issues has been at pension funds, insurance companies, mutual not lay the foundations now for analysing the is researching a variety of investment the core of this French pension reserve fund companies and sovereign wealth funds) consequences of climate change, the chances strategies including renewable energy, fund’s investment strategy. At the in- sitting at the top, and with investment of capital misallocation will be all the higher energy storage, the smart power grid, vestment mandates level, FRR requires consultants, asset managers, stock brokers in the years to come. water and agriculture. Its research has its investment managers to integrate and other intermediaries spread throughout shown that climate change investment environment criteria when managing Pressing for disclosure the chain. Ultimately, it is asset owners who strategies suit most asset classes, the portfolio. At a more global level, the determine how their capital is allocated and In addition to sending signals down the invest- from infrastructure investment and fund’s responsible investment strategy their asset managers and service provid- ment value chain, there are a number of prac- public equities to private equity and states that: “environzmental concerns ers respond accordingly. It is asset owners, tical steps investors can take to improve their venture capital. and, in particular, the impact of global therefore, that hold a particular responsibility ability to price climate change risk. The basis warming on the world economy and its In public markets, Deutsche Asset to act on this issue. They need to make sure for any sound investment decision is good in- various sectors, poses numerous ques- Management tracks an investment their agents (investment consultants and asset formation. Many financial analysts, when as- tions that a long-term investor cannot universe of 1,400+ listed companies. managers) can and are taking the necessary sessing companies, will now look at data such afford to ignore when determining its These companies are screened on steps to incorporate climate change risks into as the level of carbon emissions produced by global investment strategy”. the basis of revenues generated from the investment process – and if not, to con- that entity. However, the market often fails to sider taking their business elsewhere. FRR’s approach to environmental is- provide the necessary data on these poten- divisions that are primarily dedicated to Of course, responsibility for investment sues is conceived as a comprehensive tially material environmental issues. mitigation of, and adaptation to, climate action on climate change does not lie with and integrated approach. When fully Therefore, investors have an important role change. In private markets, Deutsche asset owners alone. Many owners outsource implemented, it will not only consist of to play in using their influence to ask com- Asset Management screens innova- day-to-day investment management to asset specialised green investments, but it panies to disclose across a wide range of ESG tive new companies for opportunities management companies. In these cases, it will be fully embedded into the overall issues, including on climate performance. This to invest in emerging climate-friendly is these companies that must decide how to investment strategy. is an undertaking consistent with Principle 3 technologies. take account of climate change risks in their The fund has recently explored the of the PRI and there are many examples of PRI Deutsche Bank is also working with or- investment decision-making. Many asset man- option of integrating environmental signatories acting with their peers to encour- ganisations to develop methodologies agers, in turn, outsource much of the basic issues into long-term strategic asset age better climate change disclosure from to analyze carbon footprints and carbon financial analysis to the sell-side research allocation. It would do this by building companies and other entities in which they betas of portfolio companies. It will houses associated with the stock broking op- macroeconomic scenarios correspond- invest. Two outstanding examples include the be stepping up its efforts in screening erations of investment banks. Asset managers ing to long-term climate scenarios, Carbon Disclosure Project and Global Climate for climate change risk and reward op- should, in turn, ensure the research houses including the possible impacts of Disclosure Framework for Electric Utilities, portunities, both in individual strategies they use have the necessary capabilities to climate change on risks and returns of detailed in the box on p.21. and across their platform. analyse climate risks. main asset classes. It is also analysing There are various ways that asset owners Improving research environmental asset classes such as can and are incentivising managers and other carbon and timberland as part of a Once investors have the appropriate informa- agents to undertake the often costly addi- long-term diversified portfolio in the tion from companies and other entities, they A number of companies, many of them tional research on climate change risks. These context of global warming. Invest- need to ensure this information is analysed PRI signatories, have been established to include: ment in clean technologies, low-carbon effectively. The engine rooms for financial provide specialist research in this area and to funds and engagement with companies analysis, at least in the equity markets, are strive to assess climate change information ■■ Assess the capability of an asset manager on environmental themes will also be the investment analyst divisions of the major even when there is a reluctance to disclose on to analyse climate change risks during the investigated in the future as part of this brokerages. This sell-side research is provided the company’s behalf. manager selection process. comprehensive approach to environ- to buy-side asset managers in order to attract ■■ Give asset managers a longer-term mandate mental issues. brokerage commission. Many asset managers * If managers think that investments in reducing carbon emissions will not be rewarded by the capital markets, they will face a disin- with a clear request to evaluate and incor- allocate commission to their brokers explic- centive to make them. porate climate change risks in investment FRR also measured the carbon foot- itly on the basis of such research. In order to decision making. print of its portfolio in order to better ensure that sell-side analysts produce high- ■■ Evaluate asset manager performance in understand the environmental impacts quality research on climate change risks and this area as part of the annual cycle of asset of its manager’s investment decisions. opportunities, it is important that asset man- manager reviews. agers recognize and reward good research in this process. 20 21 two Investor Initiatives on carbon Disclosure Global Climate Disclosure Framework Carbon Disclosure Project for Electric Utilities The Carbon Disclosure Project (CDP) began in 2000 as In 2007, the Institutional Investors Group on Climate an investor-backed initiative to encourage companies to Change (IIGCC) in Europe, Ceres in the US, which man- disclose information on carbon emissions and business ages the Investor Network on Climate Risk (INCR), and risks. Its mission is to collect and distribute high quality the Investor Group on Climate Change (IGCC) Australia/ information that motivates investors, corporations and New Zealand, collaborated with sell-side and industry governments to take action to prevent dangerous climate experts on a series of sector-based climate disclosure change. guidelines. CDP now has the backing of 475 institutional investors The frameworks, which have currently been produced for with combined assets of over US$55 trillion. Each year, the electric utilities and auto sectors, contain guidelines CDP writes to the largest listed companies around the for effective corporate disclosure of GHG emissions, and world to gain information on company GHG emissions provide a format to present both quantitative and qualita- data, and the business risks and opportunities presented tive issues in a clear and consistent way. by climate change. In 2009, CDP wrote to over 3,700 companies on behalf of investors. For investors, these guidelines make it easier to assess and compare the investment risks and opportunities In 2008, 1,500 companies filed data, making the CDP posed by climate change and climate policy to individual website the largest database of corporate greenhouse companies. For companies, the frameworks provide them gas (GHG) emissions data in the world. The site also in- with a better understanding of how they are positioned in cludes information on companies’ perceptions of climate their sector, and where new opportunities and risks may risks and opportunities and details of the actions they are exist. taking to address these. The disclosure frameworks encourage companies The large-scale, collective backing of so many financial to disclose this information using their existing com- investors, openly asking for this information, has meant munication channels, including GRI reporting, Carbon corporations have increased their focus on the issue. Disclosure Project responses, financial reports, sustain- In addition, CDP is now working with large purchasing ability reports, analyst briefings, and mandatory reports organisations to send the CDP questions to their suppli- to securities regulators such as the US Securities and ers, further enhancing the relevance and importance of Exchange Commission. the CDP process for corporations. The data is collected annually and published online for open viewing. The CDP also now requests that companies submit five year projections for their GHG emissions. These new mea- sures will help make investment decisions and company comparisons easier. By partnering with some of its supporting organisa- tions, the CDP has also started encouraging electricity companies to base their reporting on the Global Climate Disclosure Framework for Electric Utilities developed by the IIGCC. 22 23 and adapt to it are not yet well reflected by have good reason to continue to engage with take investment research on climate change, The Enhanced Analytics the markets. One of the central reasons for companies on disclosure, but also where ap- using platforms such as the PRI Enhanced Initiative and PRI Enhanced this is uncertainty, due in part to the lack of propriate to call for mandatory reporting re- Research Portal, and ensure their incentive Research Portal: a shop a firm, long-term public policy framework of quirements for carbon emissions and related structures are rewarding this research. window for high quality climate change mitigation. As discussed in information, backed by robust accounting In the longer term, it is important that investment research on chapter 5, investors can play a role in reduc- and auditing standards. Several governments the next generation of financial analysts climate change. ing some of this uncertainty through commu- are beginning to move in this direction, and are trained on climate change risk. Work to nicating to policy-makers with a loud, clear the World Economic Forum, Ceres, CDP and embed climate change risk analysis in the syl- The Enhanced Analytics Initiative and united voice that a stable and effective others have joined together to establish the labus of the Chartered Financial Analyst qual- (EAI) was established in 2004 as a long-term policy regime is urgently needed. Climate Disclosure Standards Board to de- ification and similar training programmes collaborative project between asset Another problem is the lack of accurate velop thinking on reporting standards. might be a valuable starting point for this. owners and asset managers to encour- and comparable data from companies. While The current financial crisis has also led to age better investment research on initiatives such as the CDP have done an the reduction in some sell-side ESG analysis long-term and extra-financial issues, impressive job of driving voluntary reporting teams. There is therefore a need for investors including climate change. The investors by companies, the quality and comparabil- to proactively encourage analysts to under- behind the EAI felt that climate change ity of this data is often inadequate. Investors posed a number of key concerns that were not being adequately addressed by sell-side researchers. EAI members agreed to allocate 5% of their broking Concrete progress: investor is strategically positioned to contrib- eration and purchasing, energy efficient Merrill Lynch broker report: collaboration in the ute to international climate change design, conservation retrofitting, green commissions or research budgets to financial analysis around property asset class policy, as UNEP is actively engaged building and sustainable wood certifica- those research houses that produced climate change implications in the policy-making processes of the tion, transportation demand manage- stronger analyses of these issues. The construction and occupation of In 2007, the Merrill Lynch European UN Framework Convention on Climate ment, transit-oriented development, This commitment created substan- buildings use nearly 40% of the world’s Equity research team produced a Change. solid waste management and recycling, tial incentives for brokers. In the last energy and are responsible for a similar report on the opportunities and risks tree planting and preservation, and four years, well over 25% of all major level of global CO2 emissions. The The PWG promotes and encourages presented by climate change, and an urban regeneration. research reports undertaken related fourth Intergovernmental Panel on RPI by showing how such activity can assessment of companies’ efforts to Climate Change (IPCC) assessment protect or enhance financial returns By giving access to knowledge and to climate change. They have involved reduce their climate impact. report identifies buildings as having throughout the lifecycle of buildings, expertise, best practice and capacity- leading firms such as Citigroup, JP Mor- gan, Goldman Sachs and Merrill Lynch, The Merrill Lynch report makes the the highest GHG mitigation potential while simultaneously reducing nega- building tools, the PWG is uniquely posi- as well as many smaller institutions. case that business action towards miti- among all economic sectors reviewed. tive environmental and social impacts. tioned as a global centre of excellence gating climate change is an essential In addition, the IPCC notes that the Through its research, the PWG clearly for responsible property investing. It is In October 2008, the EAI joined with long-term strategy and outlines the key spatial structure of the built environ- demonstrates how RPI principles can an example of investor leadership in an the PRI to internationalize the call for environmental risks associated with ment has a significant impact on energy be applied to property assets, portfolios asset class that has tremendous scope better investment research and promote unmitigated climate change. These requirements from urban transport. and financing. It also articulates how to combat climate change. enhanced analysis beyond the markets include reduced agriculture yield in The transport sector as a whole uses the six principles of the PRI can be engaged through the EAI. In mid-2009, For example: The French PWG mem- tropical regions, areas of increased wa- more than 20% of the world’s energy. implemented in an asset class other the PRI Enhanced Research Portal is ber Caisse des Dépôts has invested ter scarcity, massive species extinction, than equities. However, it is impor- being launched to provide a platform for In response, the Property Working US$140 million in an office property and a greater spread of disease. tant to note that property investing the broader dissemination of high-quali- Group (PWG) of the United Nations project that aims to outperform usual has marked differences from equity ty ESG research, from both the sell-side The report describes what the likely Environment Programme Finance green certifications and anticipate investing, such as the nature of asset, and ESG research providers. government policy responses to Initiative (UNEP FI) brought together future regulations. Energy require- the investor-asset relationship, the climate change mitigation may look leading institutional property inves- ments will be 50% lower than the cur- nature of returns, liquidity and invest- like in specific regions of the world and tors to advance responsible property rent regulation stipulates. The project able stock. This can lead to the sector identifies which sectors of the economy investment (RPI) thinking and practice shows how different parts of the supply adopting different approaches to will be most highly exposed. It identi- globally. chain can be brought together by inves- What more could investors responsible investment. tors create buildings with outstanding fies stock-specific risks and opportuni- be doing? UNEP FI is a partnership between the Tangible examples of RPI strategies energy performance. The results of the ties and looks at a variety of sectors. UN Environment Programme and the Individual investment institutions have made Crucially, it highlights the tangible that address climate change include project could have significant implica- great strides in recent years in building cli- global financial sector. Thus, the PWG benefits of being proactive in this area. energy conservation, green power gen- tions for brokers and future occupiers. mate risks and opportunities into investment These include lower cost pressures processes. Markets now appear to be pricing from new global regulations, reduced in some aspects of climate risk, which is a demand-side pressure from engaged sign this work is having tangible results. consumers, and capitalising early on However, there is much more to be done. new market opportunities. The predicted scale of the economic impacts of climate change and efforts to mitigate it 24 25 4. Shareholder leadership engage with hundreds of companies a year now relate to climate change, nearly half on various issues, using a variety of informal of which appear to contribute to significant and typically non-confrontational methods change in company behaviour.* to encourage improvements. Investors such At first glance, this shareholder resolu- Investors are not merely providers of capital. tions such as the UN Global Compact have an as those signed up to the PRI can between tion activity may appear ineffective because As shareholders, equity investors are also important role in helping improve company them point to hundreds of examples where investors rarely achieve majority votes at owners of companies. This gives them signifi- performance in this area. companies appear to have contributed to a shareholder meetings (though investors are cant power, influence and responsibilities. Companies, like pension funds, are significant change in their requests for im- getting ever closer to this goal). However, Shareholder leadership is relevant because fiduciary institutions with duties to their provements to the management of social and shareholder resolutions can be very effective the companies that shareholders own are, beneficiaries: the shareholders. They cannot environmental risks. despite falling short of a majority. The act of collectively, the world’s largest source of easily take actions that they know to be to In the US, where shareholder activism filing a resolution provides a platform for dis- greenhouse gas emissions. Companies in the the material detriment of their shareholders. tends to be carried out primarily via proxy cussion between the company and concerned electric power, cement, steel, chemicals, min- While in line with their own fiduciary duties, resolution, over 360 resolutions are filed each shareholders, and companies will go to some ing, energy, air travel, and shipping sectors shareholders can reasonably demand that year on a wide range of issues. Of these, 20% length to avoid these issues going to a vote. account for over half of global emissions. companies do all they can to measure and re- Many shareholder resolutions are withdrawn Many companies also market products duce emissions. This includes asking them to: as a result of companies agreeing to take that produce emissions when used by their Ford motor company: climate re- steps to respond to shareholder concerns dur- customers (such as cars, washing machines ■■ Disclose information about their carbon sponse to the 2008 proxy season ing discussion. and air conditioners). Their choices about emissions and associated risks and strate- energy efficiency in product design have sig- gies. Ford Motor Company joined with Further influence nificant second-order impacts on global emis- ■■ Adopt effective strategies to respond to institutional investors in April 2008 It is not just through voting and shareholder sions. Similarly, companies’ decisions about likely climate risks. to announce a detailed plan for the governance that investors can help improve product specification and choice of suppliers, ■■ Exploit opportunities to reduce operational company to reduce GHG emissions by the behaviour of listed companies. Large influences carbon emissions upstream in the costs through energy efficiency. at least 30% by 2020. In doing so, Ford institutional investors often own a substantial supply chain. ■■ Ensure that they do not illegitimately became the first US car manufacturer proportion of the shares in listed companies. There will be no solution to climate intervene in the political process to block to lay out such a clearly defined goal for Their investment decisions can have a signifi- change without leadership from companies. sensible climate change policies. GHG emission cuts and meet the Corpo- cant impact on company share prices. Successful climate change mitigation depends rate Average Fuel Economy Standards This soft influence also has important on their ability to innovate and invest in new The following sections explain the practical (CAFE) for 2020, recently passed by the implications, especially in business sectors technologies, to design and provide low- basis for these activities and illustrate them US Congress. where climate change raises genuinely strate- carbon products and services, and to remove with case studies. Shareholders in Ford, such as PRI gic challenges for business. Here, sharehold- carbon from their supply chains. Collabora- signatory the Connecticut State Trea- ers have leverage to demand an effective Shareholder governance power surer’s office, had filed proxy resolutions strategic response, and can plausibly threaten The role of shareholders in the ownership with the company regarding action on to reduce their shareholding in the company UN Global Compact: elevating and governance of companies is reflected in climate change. However, as a result of if it fails to produce a credible strategy. environmental stewardship by companies company law around the world. The specific this positive announcement by Ford, the Investors do not have to follow through on The UN Global Compact’s Caring for Climate platform powers and responsibilities of shareholders shareholders withdrew their resolu- this threat in order to influence companies. and CEO Water Mandate Initiative provide companies vary from country to country. In some mar- tions. What matters is that companies believe the with frameworks to help them develop, implement and kets more power is given to other stakehold- absence of an effective climate change strat- ers; in others, less. But shareholders can have The GHG emission target goal and egy is likely to adversely affect shareholders’ disclose water sustainability policies and practices. detailed plan announced in 2008 was Caring for Climate has been endorsed by more than 300 a significant role everywhere. Company law is perceptions of the company’s prospects, and commonly founded on the principle that they reported to have taken the company therefore may be detrimental to share prices. companies, while the CEO Water Mandate has grown to three years of planning and assess- 50 endorsers. should play this role actively and diligently. It is not a case of investors making aggres- Shareholder power is perhaps most visible ment to finalize. As such, consistent sive demands and backing them with crude Each uses a disclosure framework tied to the UN Global in shareholders’ right to vote on and propose shareholder resolutions over the last threats (although, in extreme cases, this may Compact’s Communications on Progress policy. resolutions at meetings of the company. But several years are likely to have played a happen). It is a more subtle matter of percep- voting is just the tip of the iceberg. Large significant role in generating a response tions and expectations. Investors can use initiatives such as these in their from the company. The details released engagement with companies. For example, in late 2008, institutional shareholders have extensive Investor power in this area is strong in the formal and informal power to influence the in the fleet reduction plan were essen- cases where climate change poses material a group of PRI investors wrote to the CEOs of 100 tial to improving investor confidence in companies in high-impact water sectors urging them to behaviour of their managers. There is consid- risks for the company over the short and erable potential for this power to be used to the company by reducing its exposure to medium term. Their power wanes when the endorse the CEO Water Mandate. The investors un- legislative risk. The plan demonstrated derscored the importance of comprehensive corporate drive carbon efficiency across the economy. risks are non-material (risks that are too small Shareholder activism on environmental that Ford Motor was preparing itself to water-management policies in managing both risks and meet stricter CAFE standards and avoid opportunities. issues has been taking place since the early 1970s. In Europe, a small number of large the potential of incurring heavy fines. * Social Investment Forum 2007 Report on Socially Responsible Investing Trends in the United States http://www.socialinvest.org/pdf/ investors have teams of ESG specialists that SRI_Trends_ExecSummary_2007.pdf 26 27 to be considered by financial analysts), and when the risks are so long-term that they are ignored by analysts for discounting reasons.** This means that shareholders will not be able to use their power as investment decision- makers to influence all companies or to ad- dress all aspects of climate change. In practice there are various ways investors can seek to deploy their influence as invest- ment decision-makers. Different techniques can have different responses. ■■ The most straightforward technique is for investors to raise the question of climate change strategy in routine meetings or communications with company executives or investor relations professionals. Agenda time at such meetings is a precious com- modity – climate change is not the only issue investors will want to discuss with the company CEO. But if time can be made for this discussion, it can make a big impres- sion. The better prepared investors are for such meetings the better. A vague question about climate change risk is likely to give rise to a vague answer. However, if inves- tors are prepared with specific and finan- cially-relevant questions about plausible McKinsey (supplied from UNEP/GRID-Arendal Maps and Graphics Library. 2009. climate change risks facing the company, UNEP/GRID-Arendal) the company will have a strong motive to ensure it has good answers. ■■ Many institutional investors also write let- Astra Investamentos: how ters to CEOs asking about climate change shareholders can reach parts strategy. This is likely to be most effective of a company others cannot when the content of the letter is relevant to reach the risks faced by the company concerned. Astra Investamentos in Brazil states, Investors are more likely to have influence “as investors, we regularly arrange when they engage companies on a collab- meetings with the Operations Director, orative basis. Using forums such as the PRI Facilities Manager or other working- Clearinghouse or the INCR, investors can join level employees of a company to forces around climate change issues and have help them fill in the questionnaires of a bigger impact. disclosure initiatives such as the CDP, and through this, consider improved Energy efficiency measures energy efficiencies. Often the CEO of a One particular area in which sharehold- company is not best placed to consider ers have a large influence on companies these detailed issues, which is why is around energy efficiency measures. In Astra targets the people in a company its 450ppm scenario, the IEA projects that who are in charge of transportation, around half of carbon emissions avoided by warehouses, environmental licenses 2030 should come from energy efficiency.*** and so on. This in turn makes the This is a massive challenge, partly because company more efficient and so it can produce better returns for our clients ** It is worth mentioning that materiality and time horizons are rela- over the longer term”. tive to the practices of financial analysts, which are themselves not necessarily optimal, as discussed in the previous chapter *** IEA World Energy Outlook 2008. 28 29 it is dispersed across thousands of compa- below good practice for their sector. for proactive company action on climate nies (unlike in the case of decarbonising Insight Investment: measuring Some early initiatives have started to be change strategy could be useful in encourag- the power sector, for example). As the Stern companies on climate risk undertaken. For example Insight Investment ing this attitude across the corporate sector. Review**** pointed out, there is evidence that Insight Investment has committed has completed a benchmark of large UK com- Equally, shareholders should work with companies do not exploit all profitable op- to working on behalf of its clients to panies (see case study), and various research companies that may be acting defensively or portunities to improve their energy efficiency encourage better management of agencies provide information services for obstructively. and minimize carbon emissions. environmental risks. In 2007, Insight investors in this area. There are also very substantial opportu- This is reflected in typical global carbon initiated ‘Taking the Temperature’, nities for companies to address operational emissions abatement cost curves, which What more could investors energy efficiency, product design and specifi- a survey assessing 125 major listed forecast that as much as 20% of projected be doing? cation, and low-carbon procurement, which companies on how they manage their business-as-usual carbon emissions could be GHG emissions, with direct company Shareholders have considerable power to would lead to reductions in carbon intensity prevented with a positive investment return. comparisons. influence companies. They already routinely and increases in corporate profitability. Energy inefficiency costs shareholders money, exercise this influence on a range of main- Shareholders could have a decisive role to as well as contributing needlessly to climate Data collected from the public domain stream strategic issues, and on questions of play in catalysing more corporate activity in change. included recently published company corporate governance. As illustrated, they this area. But if profitable energy efficiency opportu- CSR reports and company submissions are starting to use this power effectively on As the success of the Carbon Disclosure nities exist, why do profit-seeking companies to the CDP. Participating companies climate change. On some aspects of corpo- Project indicates, a large scale, coordinated not exploit them? There seems to be a variety were also invited to submit additional rate climate change management, they have programme of action to benchmark and of barriers. Investments in energy efficiency information. already been very effective in mobilising engage with bottom quartile companies could tend to be fragmented across lots of small im- The survey found that most compa- corporate activity; most notably on carbon deliver double benefits of large, voluntary, provement projects. Facilities managers who nies had implemented some level of disclosure. However, investors have consider- short-term emissions reductions and im- can deliver energy efficiency often do not management accountability for climate ably greater potential to use their influence to proved long-term profits. have access to sufficient capital expenditure change issues (93%), published climate encourage progress on climate change. Platforms such as the INCR and the PRI’s budgets necessary to implement their proj- change policies (92%) and reported The world needs the business sector to re- Engagement Clearinghouse provide a useful ects. And energy efficiency is rarely seen as GHG inventories (90%). Most had spond positively, energetically and creatively forum for investors to work together to share a strategic issue, so it receives little attention also given some sort of statement or to the challenges of climate change and to ideas and collaborate on shareholder engage- from senior managers.***** As a result, energy analysis on the financial or business react quickly to new climate change policy. ment with companies on climate change efficiency projects are not implemented, risks and opportunities associated with Earlier and more persistent investor support issues. even when they offer a competitive return on climate change (86%). investment. Shareholders are well placed to help On the other hand, Insight also found companies overcome these barriers. If institu- some weak points among the compa- tional shareholders challenge senior company nies scored. These included: weak com- managers to explain their approach to energy pany climate policies; a mixed quality in efficiency and encourage them to deliver im- emissions data reported; weak targets, provements, they will help ensure that these climate-related risks and opportunities projects are given the necessary priority. that had not been assessed; limited en- Given the importance of energy efficiency gagement on public policy; and a lack in delivering climate change mitigation, and of clarity on how to reduce emissions. given it will take a few years for any post- Benchmarking of this kind provides in- Copenhagen climate deal to become effective, vestors with the ability to better assess early voluntary action to deliver profitable and compare companies against their energy efficiency action by companies could peers and identify best practices. This be particularly powerful. If shareholders can information enables investors to target support and encourage the world’s many companies with poor risk management thousands of listed companies in their efforts and encourage them to adopt the prac- to improve operational carbon efficiency, tices employed by the best companies, they can play a very useful role in the process reducing both carbon emissions and of carbon mitigation. This will require a investor risk. comprehensive process of benchmarking companies’ energy efficiency performance to identify those whose energy management is **** See discussion in Chapter 17 of the Stern Review. ***** The Carbon Trust (2005) The UK Climate Change Programme: Potential Evolution for Business and the Public Sector, London 30 31 5. Investor engagement with public policy Climate change is a systemic problem, policy and market solutions that ensure that requiring a systemic public policy response. an orderly and efficient transition to a secure If investors accept the long-term investment climate system which is consistent with arguments for caring about climate change, long-term investment objectives.” To this end, then they should also help to ensure that the the IIGCC submitted an open letter to the policy response to climate change is systemic, December 2007 Conference of Parties in Bali timely and adequate to the task. (see box below). Engagement with international policy Investor collaboration around public policy IIGCC open letter to negotiators is a relatively new development. It is perhaps at the Bali Climate Change Con- easiest to understand how this has emerged ference, 2007 by highlighting some examples. The IIGCC open letter, submitted to Perhaps the first major cooperative effort the politicians and negotiators par- at financial sector engagement with interna- ticipating in this major conference, set tional climate change policy was catalysed out the elements relevant to inves- by UNEP and a group of commercial banks tors that should shape a post-2012 including Deutsche Bank, HSBC, Natwest, framework. The group emphasized Royal Bank of Canada, and Westpac. This that, from an investment perspective, group came together to launch the UNEP Fi- the global deal needs to set ambitious nance Initiative in 1991. In May 1992, as the GHG emission reduction targets in the United Nations Framework Convention on medium and long term, and that these Climate Change (UNFCCC) was being negoti- targets should be informed by the best ated, the first UNEP Statement by banks on available scientific evidence based environment and sustainable development on the stabilization levels required to was issued in New York. A similar State- avoid dangerous climate change. They ment of Environmental Commitment by the also highlighted the importance of an insurance industry was issued by UNEP and a expanded global carbon market and group of leading insurance and re-insurance greater use of a credible and more companies and pension funds in 1995. efficient CDM, as well as the need for These statements constituted an important more support for energy efficiency pro- expression of support for a number of princi- grammes, renewable energy, measures ples incorporated into the UNFCCC and Kyoto to reduce emissions from deforestation Protocol, such as the precautionary principle and for adaptation. and the principle of intergenerational equity. However, they were general statements, and Strong policy signals are necessary to only the one issued by the insurance industry encourage investors to integrate cli- mentioned climate change climate change mate change considerations into their explicitly. investment decisions and to re-allocate Institutional investors were not directly capital towards a low carbon economy. engaged in the public policy process until A timely agreement on a post-2012 more recently. The Institutional Investors global climate deal is a crucial element Group on Climate Change (IIGCC) was estab- in underpinning business and investor lished by a group of European pension funds confidence in this area and the IIGCC and other institutional investors in 2001. By will continue to engage with govern- mid-2008 the group had over 50 members, ment on this. The IIGCC is working representing over €4 trillion of assets. It has with partners on an updated letter also taken a leading role in bringing together that will inform the upcoming COP15 the investment community so it can speak negotiations. with one voice on climate change issues. The IIGCC’s objectives include advocacy of “public 32 33 The Investor Network on Climate Risk, a Engagement with regional and similar grouping of 70 US-based investors rep- national policy Investor action on Australian PGGM: Discussions with the European Parlia- resenting US$7 trillion in assets, was launched The largest carbon market in the world at climate change policy ment on a climate change resolution in 2003 at the first UN-supported Institutional present is not driven directly by the Kyoto The Australian Council of Superan- In 2009, the Dutch investor PGGM had several discus- Investor Summit on Climate Risk. Further such Protocol, but rather by regional legislation. nuation Investors (ACSI) and the sions with Members of the European Parliament about summits have been held in 2005 and 2008. This is the EU Emissions Trading Scheme Investment and Financial Services the role that institutional investors could play in mitigat- The INCR joined together with IIGCC and the (EU ETS), where transactions reached an Association (IFSA) joined forces in July ing climate change. Australia/New Zealand Investors Group on estimated US$94 billion in 2008.* While 2008 to show support for the Com- Climate Change to issue a call for action at the it is unlikely that the EU ETS would have The MEPs were all involved in the temporary commit- monwealth Government of Australia 2008 Conference of Parties in Poznan, Poland been implemented to the same extent in the tee on climate change and therefore responsible for in tackling climate change. Through (see box below). This statement represents the complete absence of the international policy drafting a resolution on an EU strategy for a compre- a joint media statement, the two most detailed and prescriptive intervention in framework set up by the Kyoto Protocol, it is hensive climate change agreement in Copenhagen and groups supported the introduction of the international climate change policy process notable that the legislation establishing the the adequate provision of financing for climate change a national carbon pollution reduction by investors to date. scheme preceded the entry into force of the policy. Through the discussions, PGGM was able to add scheme and encouraged the design of Kyoto Protocol itself by nearly two years. The an institutional investor-related point to the resolution, a scheme that facilitates market cer- original legislation also commits to continua- which made the European Parliament publicly acknowl- tainty and efficiency, while minimising tion of the scheme beyond the Kyoto Proto- edge the role that investors could play under the right Investor statement to the Poznan Climate Change the economy-wide costs of reducing col commitment period of 2008-2012, thus circumstances. Conference, 2008 emissions. providing a crucial lifeline for investments The wording was that the European Parliament, The statement was signed by 152 investors representing with a post-2012 payback period. The EU In September 2008, ACSI and the “Underlines that binding targets would enable investors over US$9 trillion in assets. It sets out specific outcomes recently agreed on the detailed arrangements Australian Institute of Superannuation to better assess the risks and opportunities associated that investors are looking for from policy-makers, so that for Phase III of the scheme, running from Trustees (AIST) made a joint submis- with climate change and would involve investors in investors can allocate capital in a way that supports a low- 2013 to 2020. sion to the Commonwealth Govern- projects that would meet mitigation as well as adapta- carbon economy and adaptation to climate change. These Other regional and national carbon trad- ment’s Green Paper on the Carbon tion targets; underlines, moreover, the need for clarity desired outcomes include: ing schemes have emerged in the USA, Japan, Pollution Reduction Scheme. The joint regarding the role of private capital in the investment Australia and elsewhere. The climate change submission commented on a number • A binding global target based on the latest available scien- necessary in order to reach the targets; The resolution policy framework in North America is cur- of aspects of the proposed scheme and tific evidence (which suggests that global GHG emissions was adopted by the European Parliament on 11 March rently fragmented, due to the lack (to date) of supported the Government in taking must decline by 50-85% by 2050 against a base year of 2009. It will serve as a guiding tool in future actions and a comprehensive national response in both early and effective action in tackling 2000). decisions of the European Parliament.” the USA and Canada. Three major regional climate change on an economy-wide • Developed countries should take the lead in establish- initiatives (the Regional Greenhouse Gas basis. Other investor groups also made ing long-term targets (e.g. 80-95% reductions by 2050) Initiative, the Midwestern Greenhouse Gas submissions to the Green Paper sup- as well as medium-term targets (e.g. 25-40% by 2020), Reduction Accord and the Western Climate porting the introduction of a Carbon assemble the expertise and capital necessary backed up by effective national action plans. Initiative) are in various stages of develop- Pollution Reduction Scheme, including to establish organisations to enable tangible • Contributions from developing countries, initially in the ment, and a major challenge for both the USA IFSA and the IGCC Australia/New progress towards policy goals. With the global form of national action plans focused on energy efficiency and Canada will be to integrate these schemes Zealand. response to climate change, time is of the commitments, but with the ultimate aim of absolute emis- sion reductions. in such a way as to provide a coherent, long- essence. There is a need to move very rapidly • Continuity in the legally binding framework underpinning term, consistent pricing signal to investors. from entrepreneurial start-ups to large-scale the carbon markets and provisions for an expanded and Another challenge facing these schemes international organisations. is the creation of an economy-wide market Institution building This suggests another possible dimen- more liquid global carbon market, with more links between countries, regions and sectors. These should be comple- that is equitable for all participants. Cur- The policy frameworks described above create sion for investor leadership. Some investors, mented by other nationally appropriate policies such as rently these schemes cover a select group of rules and incentives for overseeing organisa- particularly those with venture capital and incentives, regulations, product and process standards industries (such as the power sector and large tions, but often leave the task of creating private equity experience, have in-depth and/or taxation. industrials). This means that they are bound organisations to implement the frameworks knowledge of the requirements for the rapid • The review, reformation, and expansion of the CDM. by the rules and caps set by these schemes, to the market and the private sector. This scale-up and growth of new businesses, • Government support for the development of new and while other industries can go along with busi- is deliberate, and based on the assumption whereas policy-makers, in general, do not. near-commercial technologies, and support for technol- ness as usual. that markets and private sector actors are Investor input could help design mechanisms ogy transfer while protecting intellectual property and There are many examples of groupings of better suited to entrepreneurial risk-taking that are more amenable to these particular contract rights. national investment institutions making clear than intergovernmental agencies or national demands. At the very least, investors need • Measures to reverse deforestation and value forests as their support for an ambitious policy regime governments. This choice requires the private to ensure they understand the policy frame- carbon sinks. to their national governments. sector to respond quickly and effectively to works that emerge from international, re- • Increased measures and adequate and consistent financ- the frameworks and incentives established by gional, national and local processes, in order ing for adaptation, including enhanced access to insur- * New Carbon Finance estimate, 8 January 2009 policy-makers. to evaluate the associated risks and opportu- ance markets and new technologies to improve climate This quick response is not always reli- nities and respond with investment in new resilience. able. Even with well-designed policy instru- businesses and projects. ments, it may take time for entrepreneurs to 34 35 What more could investors that they are likely to join forces to produce negotiations. This includes providing capac- increased oversight and regulation of carbon be doing? a combined statement for Copenhagen is ity building to governmental negotiators markets. This may not be a bad thing. In- At the international climate change policy helpful. But given the nature of the UNFCCC (especially from under-resourced developing creasing the transparency of carbon financial level, the principles and objectives already process, it would be useful if they could seek countries), so they understand the potential instruments and preventing excess volatility set out in the IIGCC/INCR/IGCC 2008 Inves- to broaden their representation, in particular impact on future investment decisions of the in carbon prices may also help to reduce risk tor Statement to the Poznan climate change to developing country investors. In addition, regulatory framework to which they are sign- premiums that in turn constrict investment conference (p.32) need to be translated into investors are currently loosely represented ing up. A Copenhagen deal is achievable only flows into climate change mitigation and ad- concrete suggestions at the COP15 negotia- by the business-and-industry constituency of by consensus between all of the 190+ parties aptation. Investors should research the forms tions. The investment community cannot observers to the climate change negotiations involved. of regulation that could be applied to carbon afford to assume that international negotia- (known as the Business and Industry NGOs The relatively more mature European markets in order to come to a collective view tors have the capacity, even if they have the group, or BINGOs). Investors should ask them- carbon market has seen the emergence of a on the most investment-friendly alternatives, willingness, to do so without assistance. selves whether their interests are adequately specialised Carbon Markets & Investors As- and then engage with policy-makers and The need for investor leadership on represented as part of this diverse group, and sociation to represent investor interests and regulators to ensure that these options are climate change policy is particularly acute at whether a more specialised INGOs (Invest- engage in market development at this more implemented. the international level, due to the global, sys- ment NGOs) group would provide a better detailed level (see box on previous page). Finally, investors should investigate op- temic nature of the problem and the urgent means of highlighting investor concerns to Similar new investor forums may be required tions for overcoming the effects of the credit need for a timely, effective response. the negotiating parties. If so, a request for rec- to fulfil a similar role in the major developing crisis on sourcing finance for climate change The Copenhagen COP 15 negotiations, and ognition of an INGOs group could be made in country markets around the world. mitigation and adaptation projects, such as subsequent meetings which will be required Copenhagen, and this request in itself could In the wake of the crisis in conventional government-backed climate bonds. to elaborate any deal achieved in Copenha- raise the profile of the investment commu- financial markets, governments will expect gen, will have unique importance for inves- nity at the summit. tors worldwide. This is due to the long-term Second, investors should seek appropri- nature of the policy framework being negoti- ate engagement with the broadest possible ated, its economic impact on investments range of negotiators directly involved in across the board, and the knowledge that the process. Investors should seek to ensure this time, the framework needs to be capable that they allocate resources to enable their of mobilising not hundreds of millions of representatives to contribute effectively to the dollars of new investment, but hundreds of billions per year. While general principles and objectives Carbon Markets & Investors are still a necessary first step, the new policy Association framework will also build on the existing principles and objectives of the UNFCCC The Carbon Markets & Investors As- and Kyoto Protocol, as well as the body of sociation (CMIA) was formed in August knowledge that has developed in recent years 2008 by the merger of the Carbon about the operation of carbon markets, funds Markets Association (CMA) and Inter- and other frameworks for investment. It will national Carbon Investors and Services therefore be more detailed and prescriptive (INCIS). The association represents in terms of the actual design and regulation around 50 companies involved in the of instruments and measures, such as carbon carbon markets, including financial markets and mechanisms for technology institutions, carbon funds, project development and transfer. The more detailed developers, lawyers, accountants, veri- the framework becomes, the greater the risk fiers, emissions brokers and IT firms. that government negotiators (typically drawn As well as acting as a representative from environment departments) may not body for these investment and services fully understand the consequences for invest- companies, the association provides ment and financing of the text that they support for the development of market negotiate. enabling factors such as improved This suggests two key areas on which global trading rules and arbitration investors could focus. facilities, training and standardization. First, whenever possible, the investment A key area of the CMIA’s policy en- community must speak with a single voice at gagement is focussed on the reform of the negotiations. post-2012 carbon market institutions, The various bodies already represent- such as the CDM Executive Board. ing investors (UNEP FI, IIGCC, INCR, IGCC) should cooperate even more closely. The fact 36 37 6. Conclusions Methodology and a registered CDM and JI expert for the This report draws on the authors’ extensive UNFCCC. He lectures in business and climate experience working in the field of invest- change at the University of Edinburgh Busi- Stabilising carbon emissions at a level that Tackling this requires clear incentives ment and climate change. ness School. will successfully mitigate the risk of cata- within the investment value chain to reward Craig Mackenzie has lead the respon- The authors conducted a survey of recent strophic climate change is a huge challenge. excellence in this area, and this ultimately sible investment teams at two PRI signatory literature, reports, and web materials relating Investors have a vital role to play in enabling depends on strong signals from the asset asset management companies, and has to investment and climate change. They also us to meet it. owners at the top of the value chain. It is also worked for a PRI signatory investment interviewed individuals in a number of PRI In the next 20 years, their most basic role also important that there are improvements consultant, advising asset owners on PRI signatory organisations and, assisted by the will be to provide much of the capital needed to research on climate change risks, better implementation. He now leads climate PRI Secretariat, conducted a consultation to finance the development and deployment training of financial analysts, and a contin- change work at the University of Edinburgh of the PRI signatories. Extensive comments of low-carbon technologies and solutions. ued push for greater disclosure of material Business School. and helpful advice were provided by a large Investors will not be able to do this unless climate change information from companies Francisco Ascui has worked in climate number of other stakeholders and a special policy-makers ensure that such investments and other investee entities. change policy and carbon markets for the note of thanks must go to David Russell of are financially rewarding. This will not hap- As well as providing capital, investors are past 10 years, in government and as an inde- USS, Rob Lake of APG, Marcel Jeucken of pen by itself. Leading investors around the also shareholders. As owners of the world’s pendent consultant. He is the lead author of PGGM, Butch Bacani and the UNEP FI team, world must work constructively with national biggest carbon emitting companies, they have UNEP’s Guidebook to Financing CDM Projects PRI Secretariat and PRI Board governments to ensure public-policy frame- a direct opportunity to drive carbon efficien- works drive this forward rather than holding cies across the economy, while also improving it back. their investment returns. Leading investors Even if policy-makers deliver the necessary are starting to demonstrate that they can play frameworks, creating the organisations and this role effectively. markets large enough to channel trillions of The challenge of climate change is so great dollars of finance to appropriate investment that all sectors of the economy must play opportunities in the short time necessary will their part if we are to meet it. Along with in- be challenging. Leadership will be required vestors, governments, voters, companies, and from investors to ensure they are ready to consumers all have important roles to play. develop and scale up institutional responses The fourth report of the IPCC shows that if as soon as governments establish policy the world fails to stabilise emissions some- frameworks. where near 450ppm, we run a substantial It is also vital that this capital is allocated risk of an extremely dangerous outcome; one efficiently in the face of ongoing uncer- that may undermine the ability of long-term tainties about climate science, technology investors to deliver the returns they (and and policy. Investors that over-emphasize their beneficiaries) have been counting on. the short-term profits arising from carbon It is firmly in the interests of investors that intensive businesses and under-emphasize they help avoid this outcome, and devote the long-term carbon price risks will impede resources necessary to rise to the challenge of the transition to a sustainable low-carbon leadership. economy, and, in the end, fail to serve the interests of their clients. 38 Bibliography ■■ FRESHFIELDS BRUCKHAUS DERINGER ■■ PRINCIPLES FOR RESPONSIBLE INVEST- six principles of the PRI (2005) A Legal Framework for the Integra- MENT (2008) Report on Progress p.39 Ge- tion of Environmental, Social and Gover- neva, Switzerland, United Nations Environ- 1 We will incorporate ESG issues into investment analysis and nance issues into Institutional Investment. ment Programme Finance Initiative. decision-making processes. Geneva, Switzerland, United Nations Envi- ■■ SOCIAL INVESTMENT FORUM (2007) Report ronment Programme Finance Initiative. on Socially Responsible Investing Trends 2 We will be active owners and incorporate ESG issues into our ■■ GOLDMAN SACHS (2008) Sustain A Warm- in the United States. Washington, USA ownership policies and practices. ing Investment Climate. London, UK http://www.socialinvest.org/pdf/SRI_Trends_ ■■ HAWLEY, J. & WILLIAMS, A. (2000) The Rise ExecSummary_2007.pdf 3 We will seek appropriate disclosure on ESG issues by the of Fiduciary Capitalism: How Institutional ■■ STERN, N. (2006) The Economics of Climate entities in which we invest. Investors Can Make Corporate American Change: the Stern Review. Cambridge, UK: More Democratic. Pennsylvania, USA, Uni- 4 We will promote acceptance and implementation of the ■■ Cambridge University Press. versity of Pennsylvania Press. Principles within the investment industry. ■■ SULLIVAN, R. et al. (2008) Taking the Tem- ■■ HARVEY, F. (2008) Financial Times US perature London, UK, Insight Investment 5 We will work together to enhance our effectiveness in Emissions Trading Waits for Bush to Go London, UK ■■ GRUBB, M. and WILDE, J. (2005) The UK implementing the Principles. http://bit.ly/financial_times_US_Emissions Climate Change Programme: Potential Evo- lution for Business and the Public Sector, 6 We will each report on our activities and progress towards ■■ INTERNATIONAL ENERGY AGENCY (2008) London, UK The Carbon Trust implementing the Principles. World Energy Outlook. Paris, France ■■ THE WORLD BANK (2009) First World ■■ International Energy Agency Bank Green Bonds Launched Washington Energy Technology Perspectives 2008. DC, USA http://bit.ly/World_Bank_Green_ Paris, France. Bonds_09 ■■ INTERNATIONAL PANEL ON CLIMATE ■■ UNEP/SEFI (2008) Public finance mecha- CHANGE (2007), Fourth Assessment Report, nisms to mobilise investment in climate Geneva, Switzerland change mitigation (Advance Draft) http:// http://www.ipcc.ch/ipccreports/ar4-syr.htm sefi.unep.org/fileadmin/media/sefi/docs/ ■■ MACKENZIE, C. (2006) The Scope for UNEP_Public_Finance_Report.pdf Investor Action on Corporate Social and ■■ UNFCCC (2008), Investment and Financial Environmental Impacts. IN SULLIVAN, R. & Flows to Address Climate Change, Geneva, MACKENZIE, C. (Eds.) Responsible Invest- Switzerland ment. Sheffield, UK, Greenleaf. http://bit.ly/UNFCC_Investment_to_climate_ ■■ Enkvist, P.-A., Nauclér T. and Rosander J. change (2007) A cost curve for greenhouse gas re- duction, The McKinsey Quarterly, McKinsey & Company, New York, USA ■■ MERRILL LYNCH (2007) Combating Climate Change: Risks and Opportunities London, UK ■■ NEW ENERGY FINANCE (2008), Global Trends in Sustainable Energy Investment Nairobi, Kenya, UNEP http://sefi.unep.org/ fileadmin/media/sefi/docs/publications/ PHOTO CREDITS: Global_Trends_2008.pdf ■■ NEW ENERGY FINANCE (2009), Global Page 4 © Michael Utech Futures. London, UK Page 9 © Wolfgang Muecke http://bit.ly/NEF_Global_Futures_09 Page 15 © Anna Lubovedskaya Page 17 © Clint Spencer Page 20 © iñaki antoñana plaza Page 31 © Michael Mihin Page 35 © Mike Clarke The Ten Principles of the United Nations Global Compact Human rights Principle 1 Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2 make sure that they are not complicit in human rights abuses. Labour Principle 3 Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4 the elimination of all forms of forced and compulsory labour; Principle 5 the effective abolition of child labour; and Principle 6 the elimination of discrimination in respect of employment and occupation. Environment Principle 7 Businesses are asked to support a precautionary approach to environmental challenges; Principle 8 undertake initiatives to promote greater environmental responsibility; and Principle 9 encourage the development and diffusion of environmentally friendly technologies. Anti-corruption Principle 10 Businesses should work against corruption in all its forms, including extortion and bribery. Published by the UN Global Compact Office Contact: globalcompact@un.org May 2009