From the blog: Last month some 130 world leaders travelled to New York to formally sign the Paris Agreement, sending a powerful signal to the investment community that now is the time to shift assets towards the low-carbon economy.
The strength of the new climate accord indicates a certainty around this economic transition that did not exist before, and pension funds increasingly understand that the emergence of a low-carbon economy – with multiple beneficial opportunities – needs to be as swift as possible.
Just one example of the momentum that has now built among investors was the statement this month from more than 400 institutional investors with $24tn (£16.7tn) of assets under management calling on world leaders to accede the Paris Agreement into national law as a matter of urgency.
The strength of the new climate accord indicates a certainty around this economic transition that did not exist before, and pension funds increasingly understand that the emergence of a low-carbon economy – with multiple beneficial opportunities – needs to be as swift as possible.
Just one example of the momentum that has now built among investors was the statement this month from more than 400 institutional investors with $24tn (£16.7tn) of assets under management calling on world leaders to accede the Paris Agreement into national law as a matter of urgency.
The transition to a low-carbon economy in coming decades is inevitable; long-term investors need to act now to both create the future and gain from it
Easier said than done, you might hear some chief investment officers respond. However, investors' access to the practical tools needed to effectively assess and manage the carbon exposure of their portfolios has changed.
This is especially the case when it comes to that crucial building block of all investment decisions: good information.
Perhaps the best example of the new era of accessible practical tools is the wide availability of decision-ready environmental data.
Such company information is vital for investors if they are to understand the risks and opportunities, engage with their investees on long-term behavioural changes and, ultimately, make better informed decisions.
For example, analysis of the auto sector from February 2015 highlighted that several companies could be at risk of fines for failing to meet stringent emissions targets for their vehicle fleets.
Estimates that a number of these fines could reach more than a billion dollars were met with a degree of scepticism among some investors as to whether any auto company would ever be penalised so severely by the authorities.
That all changed a few months later with the announcement of the US EPA’s discovery that VW was dishonestly underestimating emissions from its vehicles.
There is also a need for more dialogue among pension funds and the wider investment industry about the risks and opportunities posed by climate change, including increased debate around the potential for depressed demand for oil, which could maintain low oil prices and reflect a structural rather than a cyclical shift.
It is clear that last week’s ceremony in New York has created a historic window of opportunity for investors. The transition to a low-carbon economy in coming decades is inevitable; long-term investors need to act now to both create the future and gain from it.
Paul Dickinson is executive chairman of environment data organisation the CDP
*The original version of this article said the signing of the Paris Agreement happened last week. This has now been amended.
