Investing in climate change solutions
Actively investing in solutions to climate change is equally as important as withdrawing capital from fossil fuels if we are to achieve climate stability for our planet.
Clean energy is now commercially competitive. This turning point was achieved even before the game-changing Paris Agreement delivered much awaited certainty to global investment markets with the introduction of frameworks and timelines for measurable action on climate change. Add to this the world’s love affair with energy efficiency, change in China driven by severe urban pollution problems, citizen action for energy independence and the promise of technology without limits, it would appear the perfect storm for environmental investing has arrived.
In Australia, environmental markets are taking shape again after almost a decade of political uncertainty around climate change. Environmental investment pipelines are being fostered by investment firms and new initiatives are ushering environmental solutions through the incubation stage to investment readiness, scaling-up and commercialisation.
This new landscape provides a once in a lifetime opportunity for foundations and individual philanthropists to leverage change where it is most needed — in capacity building or other incubation assistance for promising, green enterprises, in helping businesses become investment ready, in shifting significant capital to commercialise large-scale ventures and the many other opportunities in between.
The rise of renewables
2015 produced a new record for global investment in renewable energy. Excluding large hydro-electric projects, investments in renewables was $285.9 billion, a figure much boosted by China increasing its investment by 17 per cent to $102.9 billion, or 36 per cent of the global total, and India raising its investment by 22 per cent to $10.2 billion. This global figure is more than double the investment in new coal and gas generation in 2015, estimated at $130 billion.
Figure 1 illustrates specific examples where renewables can now outperform fossil fuels.
“The race for renewable energy has passed a turning point”, stated Bloomberg Business in April 2015 “The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined. And there’s no going back.” See Figure 2.
The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined.
And there’s no going back.
Reading a range of policy statements is a good way to see how others approach the re-investment of funds into clean energy and low carbon opportunities, when fossil fuel related investments have been divested from the portfolio. Sample statements and some specific examples from organisations illustrate different approaches to consider.
Clean energy commitment
- DivestInvest Philanthropy pledge: “We are foundations divesting from fossil fuels and switching to clean energy investments…in the next five years, we will invest at least five per cent of our portfolio into climate solutions defined as renewable energy, energy efficiency, clean technology and clean energy access.”
- Divest Fossil Fuels Australia pledge: “We pledge to divest from all direct investment in the prospecting, extraction, transport, sale and the burning of fossil fuels (for electricity production) and will actively support the development of renewable energy alternatives and energy efficiency solutions to reduce fossil fuel dependency.
- Rockefeller Brothers Fund: “In early 2010 we went to the board with a proposal that we set aside 10 per cent of the total value of our assets at the time. The 10 per cent equated to about $86 million and we were looking for ways of proactively investing those assets in market rate investments that would support our mission, primarily in the areas of clean energy, new technology and other business strategies.” Stephen Heintz, President
- AXA: “Chief Executive Officer Henri de Castries said he’s working to sell 500 million euros ($702 million) of coal assets and triple ‘green investments’ to 3 billion euros by 2020.”
- Allianz: “In the medium-term, we want to at least double our [2.5 billion euro] investments. Given unequivocally positive signals and reliable framework conditions for long-term investors, climate protection is unlikely to fail because of a lack of funding” Oliver Bäte, CEO
Opportunities in Australia
There is significant hunger for solution-based investments in Australia. Signatories to Australia’s version of DivestInvest called Divest Fossil Fuels Australia actively pursue climate solution opportunities, although investing has been difficult as Australia’s environmental markets are relatively underdeveloped due largely to policy stagnation. There has, however, been demonstrable change following the Paris Agreement coming into force. New opportunities are rapidly becoming available to different types of investors, enabling Australian signatories to engage more actively in emerging environmental markets.
In 2016, AEGN launched a new initiative to help members to gain the confidence, knowledge and networks to navigate these growing environmental markets. The Environmental Impact Investing Group provides opportunities for members to exchange information and due diligence knowledge, to meet in person to learn from experts, review new offerings and share networks. The group is open to all foundations.
Divestment gathers speed
Valerie Rockefeller Wayne, Chair, Rockefeller Brothers Fund, “With fossil fuels, we want to get out as quickly as possible for financial reasons, as fast as is prudent the value of coal stock in the United States has gone down 60 to 90 per cent.
This is a global phenomenon if you look over the last five years, the S&P 500 has gone up by 76 per cent. The value of coal stocks has gone down by 71 per cent, according to the index of the leading coal companies. So you’ve lost a lot of money if you’ve been in coal. To put more money into something that you know is damaging the environment is not just denying science, it’s denying the data.
Rockefeller brothers fund talks about its divestment decision
Four Corners, 15 June 2015
Guidelines for foundations
Dear philanthropic community
The escalating climate crisis will impact the programs of all philanthropic institutions, not just those focused on environment and health.
While all of philanthropy must consider how climate change will affect our respective missions, we believe grantmaking alone will be inadequate to meet the challenge.
With this in mind, the undersigned foundations have come together in a new initiative to divest our assets from fossil fuels and to invest in climate solutions and the new energy economy.
We invite you to join us
DivestInvest Philanthropy seeks to reinforce the growing divestment movement in colleges, cities, states, pension funds, and religious institutions. Drawing on a core innovation of anti-Apartheid activism, today’s movement argues that mission-based institutions whose goals and constituencies are threatened by the extraction and combustion of fossil fuels should not also seek to profit from them. It exposes the fossil fuel industry’s efforts to block progress to a clean, renewable energy future, and argues for new investments that will advance climate solutions rather than drive the crisis.
Philanthropy has an opportunity to put its full weight behind this new movement and lead in efforts to address climate change. In the broadest sense, this means using all our assets to advance our goals, values, and beliefs.
At a minimum, it means ensuring our investments do not drive the problems we ask our grantees to solve. Investments cannot undercut the philanthropic mission — serving the public good. In the final analysis, this is our primary fiduciary obligation.
While moral accountability alone compels us to act, the financial case to divest and reinvest is no less compelling. There is growing recognition that if we hope to maintain a liveable climate, the majority of fossil fuel reserves now on the world’s books will become stranded, unusable assets. The UN Intergovernmental Panel on Climate Change establishes the compelling science. Fossil-fuel stocks, whose valuations are linked to reserves, are thus vastly over-valued, with conservative estimates pointing to a multi-trillion dollar “Carbon Bubble,” many times the recent $2 trillion housing bust.
Failure to deflate this bubble in oil, gas, and coal investments now, risks profound economic consequences later. A growing body of financial analysis — from PwC, Carbon Tracker, the London School of Economics, Lord Nicholas Stern, The Grantham Institute, HSBC, the Financial Times, and The Economist — has issued similar warnings. Prudent investors seeking to avoid future losses will act now. Studies show negligible-to-no near-term risk in divesting from fossil fuels, coupled with a growing range of opportunities to build assets by investing in vehicles with low-carbon impacts.
DivestInvest Philanthropy was established in 2014, supported by US based Wallace Global Fund. Wallace was an advisor to, and funder of, college campus divestment campaigns which started to emerge in 2011. In a short space of time, momentum built, with commitments from faith-based groups, hospitals, municipalities, cities and states. Foundations stepped up in a significant way, fearing their investments were driving the problems they asked their grantees to solve.
The DivestInvest Philanthropy Commitment Letter provides a persuasive explanation as to the importance and relevance of this issue for foundations.
There is a wide range of profitable investment products available across all asset classes for renewables, clean tech, and energy efficiency. We have a unique opportunity to model how investments can be used to solve social problems, while delivering solid returns. Let’s demand the same clear vision for catalytic change from our investment professionals as we do from our grantees.
We come together as a group of foundations with assets totalling close to US$2 billion. While we have diverse missions, we are united by a common recognition that we must put all our tools into service, without delay. Each of us is at different stages of meeting this commitment. Some are fully divested from fossil fuels, while others are targeting specific classes of investments along a trajectory toward complete divestment. Some are pioneers in impact investing and others are just beginning.
DivestInvest Philanthropy unites the power and credibility of the philanthropic community to respond to the global climate crisis and support innovative and sustainable energy alternatives. Our fiduciary duty compels us to take full account of the financial and social impacts of our investments. Business as usual is no longer an acceptable practice. For ethical and financial reasons, we therefore commit to divest from the major fossil fuel companies — retaining minor positions for shareholder advocacy — and to invest instead in climate solutions and a sustainable future economy.
Divestment gathers speed
Norway’s sovereign wealth fund, the world’s biggest, has excluded 52 coal-related companies in line with new ethical guidelines barring it from investing in such groups, Norway’s central bank said on Thursday.
The move was seen as a sign of the growing influence investors wield in the fight against climate change. In June 2015, the Scandinavian country’s parliament agreed to pull the fund out of mining or energy groups which derive more than 30 per cent of their sales or activities from the coal business.
Norwegian Government pension fund implements divestment decision
The Guardian, 15 April 2016
We invite you to begin with the following steps
- ASSESS: Conduct an assessment of your exposure to climate change risk, defining the degree to which you are invested in fossil fuels versus climate solutions and investments that support your mission.
- CONSULT: Launch a dialogue among Board and Staff on investment strategies that align investments with mission and support a sustainable and just economy.
- COMMIT: Commit to a timetable and process, commensurate with the pace of climate change, for eliminating all fossil fuels from your investment portfolios while investing in a new, clean energy economy through renewables, clean tech and other innovations.
Together, we can form a community of practice, learning from each other’s efforts, sharing strategies, and scaling innovation. Most significantly, we are taking action on one of the most important challenges humankind has ever faced.