Go green and pocket a trillion euro
Banks and investment funds press clients to loose carbon overweightsIvan Mastagarkov
The investment and industrial future seems to change its nature and direction as green-related funds step up their efforts to reduce global pollution and boost environmental projects. In the past, we were talking about the romantic ambitions of a bunch of ecological fractions. This stream has evolved and now has a key role in the global industrial governing. A whole new generation of fund managers has taken over the global economy. Today if you do not go green, you won't have the cash to afford to exist on the econ map. Politicians have also paved the way to press whole countries and economic sectors to reduce carbon-related emissions and boost green-related projects.
Even UN Secretary General Antonio Guterres has urged countries to stop financing the coal industry, to deliver a sustainable future following the pandemic.
“Coal has no place in Covid-19 recovery plans,” he said during an online summit hosted by the International Energy Agency (IEA).
The summit included 40 government ministers from countries around the world, representing 80% of global energy use and emissions. Its aim was to set out plans to reduce global emissions while also boosting economic recovery after Covid-19.
Guterres commended governments that have committed to green recovery plans, citing the EU, South Korea, Nigeria and Canada. But he said many others had missed the point.
“Some countries have used stimulus plans to prop up oil and gas companies that were already struggling financially. Others have chosen to jumpstart coal-fired power plants that don't make financial or environmental sense.”
He added that new research on recovery packages in G20 nations show that twice as much recovery money has been spent on fossil fuels as on clean energy.
A blueprint released by the IEA called on governments to invest $3tn in a green recovery.
It said failure to act now would risk a repeat of the aftermath of the 2008 global financial crisis, when governments did not prioritise stimulus spending on climate, allowing CO2 emissions to bounce back with what the IEA describes as the largest increase ever recorded.
Guterres said that, with “trillions of dollars of taxpayers' money into recovery strategies”, they must invest in a more sustainable future.
“We can invest in fossil fuels whose markets are volatile and whose emissions lead to lethal air pollution, or we can invest in renewable energy which is reliable, clean and economically smart,” he said.
“There is a global momentum to build a sustainable economic recovery process and momentum for clean energy transition,” he said.
Tracking this momentum, investors managing around $20tn in assets called on the heaviest corporate emitters of greenhouse gases to set science-based targets on the way to net zero carbon emissions by mid-century.
AXA Group and Nikko Asset Management Co are among 137 investors urging 1,800 companies responsible for a quarter of global emissions to act, coordinated by non-profit group CDP.
While more companies are pledging their support for the 2015 Paris Agreement on climate change, aiming to be carbon neutral by 2050, not all have been clear about how they will get there.
To help limit global warming to no more than 1.5°C above pre-industrial norms by 2050, companies need to set out their pathway to net zero and ensure it is consistent with the science and independently verified, the investors said.
“Climate change presents material risks to investments, and companies that are failing to set targets grounded in science risk losing out - and causing greater damage to the world economy,” said Emily Kreps, an economist, quoted by CNN.
Specifically, the investors said they wanted companies to set targets through the science-based targets initiative to help ensure the goals can be more easily compared and assessed.
More than 1,000 companies have already set science-based targets, of which around 300 have targets in line with the 1.5°C goal.
“Companies that do not set science-based targets risk being surprised by increased costs or lost business that could result from the increasing focus on climate change by society and regulators,” Ted Maloney, Chief Investment Officer at MFS Investment Management, told Reuters.
Thirty of the world's largest investors managing a combined £3.8tn said they plan to set targets to lower their portfolio carbon emissions by as much as 29% over the next five years.
All members of the Net-Zero Asset Owner Alliance, a group which includes the biggest US pension scheme CalPERs and German insurer Allianz, are aiming to align their portfolios with the 2015 Paris Agreement on climate change.
The move is the most ambitious yet by the influential group, whose members own sizeable stakes in many of the world's top companies, and comes as pressure builds for asset owners to use their financial muscle to push for quicker change.
While an increasing number of investors, companies and governments are committing to net zero carbon emissions by 2050, some have been criticised for not setting the clear nearer-term targets needed to ensure the goal is met.
However, the group said its members would implement cuts in greenhouse gas emissions from their portfolios of between 16% and 29%, with each confirming their own particular target in the first quarter of 2021.
The group said it would send a message to the thousands of companies owned by the investors that “deep emissions cuts are required” and that the group would work with boards willing to adjust their business models.
“Reaching net-zero is not simply reducing emissions and carrying on with the business models of today,” Guenther Thallinger, Alliance chair and member of the board of Allianz SE, told CNN.
HSBC also said it would target net zero carbon emissions across its entire customer base by 2050 at the latest, and provide between €750bn and €1tn in financing to help clients make the transition, the bank's chief executive, Noel Quinn, told Reuters.
The pledge is the strongest statement by Europe's biggest bank on climate change to date, although it met with criticism from some environmental groups for not taking more immediate action to curb its fossil fuel financing.
“Covid has been a wake-up call to us all, including me personally. We have seen how fragile the global economy is to a major event, in this case a health event, and it brings home the reality of what a major climate event could do,” Quinn told Reuters in a video interview.
HSBC aims to achieve net zero emissions in its own operations by 2030, he added. While other UK banks such as NatWest have already set similar net zero goals, HSBC's aim to achieve it across its huge Asia-focused client base is one of the most significant pledges made by a global lender to date.
However, the bank will be closely watched for how quickly and fully it pursues its new goals, which are mainly stated as aims rather than hard commitments.
HSBC has come under increasing pressure from activists, shareholders and politicians who say it is contributing to climate change by financing environmentally harmful projects.
Quinn said the bank was focused on expanding its capital markets-focused carbon transition policies to a broader one, encompassing all its activities across financing, asset management, and corporate and retail banking.
JPMorgan became the latest bank to expand investment in clean energy and work towards net zero emissions by 2050, in line with the 2015 Paris Agreement on climate.
With many Asian clients directly connected to or reliant on the coal sector - whose emissions are a leading contributor to global warming - HSBC is in a relatively tougher position.
HSBC will also aim to invest €100m in clean technology, and donate a further €100m towards climate innovation ventures and renewable energy sources, alongside its previous commitment of funding to a new natural capital venture.