Money turns green: investing in the future post-Paris
How investors will help get the no-carbon world built
By Matt Finch
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The dust has settled, the delegates have returned home, the journalists have closed their laptops. The Parisians have said goodbye to the hordes of delighted greenies and are back in their cafes, sipping coffee and talking politics (“didn’t Laurent Fabius do well”). Everyone’s taking a well-earned break and looking forward to Christmas.
But the real work of the Paris Agreement - implementing it - starts now, and it’s pretty clear that the business community will be one of the implementers of the new clean economy - they were specifically mentioned in the preamble of the agreement as ‘mobilizers of more ambitious climate action’. No pressure then.
Now at the risk of sounding obvious, strategic long-term investment decisions taken in the boardroom have to be taken with the future in mind. If you’re going to bring out a new product, will it match what the world will want when it’s released? What direction should your R&D guys be going? If you’re going to fund a start-up, does it match the future or the past? Future risks, future rewards. The past is dead in the boardroom. The Paris agreement has just laid down a clear marker of which direction we’re headed in, and investors will love that fact - for them, clarity is almost as important as profits.
Building a no-carbon world won’t be easy, but it will be possible. Money flows, and given the right conditions, the invisible hand of the market will guide money to where you want it to. Sometimes the invisible hand is quite visible though.
The Green Infrastructure Investment Coalition was launched last week (in Paris, obviously). For once, the name is exactly spot on. The GIIC is a group of investors, including amongst others Alliance Bernstein, Deutsche Bank, the Indian Development bank and Legal and General Investment Management, who will play a large part in where and how the no-carbon world will be built. These guys have money. Serious money. Often it’s our money (yes, mine and yours) in the form of pensions - and they are constantly looking at and evaluating their portfolios. What stocks should I hold? What markets should I be in? Who is best deserving of my money? They can and do make-or-break companies, and, by being part of this coalition their statement of intent is clear: If you’re a fossil of a business looking for something that doesn't fit with our futureview, then you’re not welcome.
This coalition isn’t unique though. The Governor of the Bank of England, Mark Carney - an important man - leads the Financial Stability Board. It advises the G20 on threats to the economy. They have acknowledged that climate change is such a threat that they asked Michael Bloomberg - another important man - to draw up reporting standards on environmental issues. At first it will be voluntary for companies to comply, but it doesn’t take a great leap of imagination to see that with a small bit of government policy these could quickly become legal force. Across the whole G20.
Aha, I hear you say though. Reporting standards are not real change. They don’t force a company to change their ways. Well, no, they don’t. But what they would do would enable everyone with a bit of spare money to invest to see how well individual companies are doing environmentally. And since information is power, they would use this power to divert money from bad companies to good companies. Consumers would buy good companies’ goods and services. Investors would finance good companies. Faced with losing money, bad companies would relatively quickly become good or extinct.
Paris was awash with CEOs who were keen to highlight the actions they’ve undertaken and the commitments they’ve made. The Science Based Targets initiative announced that 114 companies have committed to set emissions-reduction targets. The excellent RE100 initiative, where companies commit to getting 100% of their worldwide electricity from renewable sources already includes Aviva, M&S and Unilever.
In Paris they announced that Google, BMW and Coca-Cola would be joining them. Whilst they will never say it publicly, all companies involved in these initiatives desperately want any obligation to report environmental standards with open arms. They will be the AAA-rated top of the class star pupils with smiles on their faces and a pat on their collective backs from the regulator. And they’re also the good guys money will flow to.
But the money has already started flowing. Green bonds are taking off. According to the We Mean Business coalition the figures are US$36 billion in 2014, US$100 billion in 2015 and a prediction to reach $300million by 2018. The simultaneous carrot and stick of environmental reporting standards can only accelerate this movement. Divestment from fossil fuel companies is accelerating. Allianz (yes, them again) recently announced that they were cutting about $4billion of investments in coal, and boosting investments in wind power.
The Rockefeller Foundation is also at it - they announced in 2014 they were divesting from all coal. These guys are massive, but there are now hundreds of smaller organisations doing exactly the same thing, including many UK Universities. Just to remind you, money divested from one thing is invested in another, and renewables are clearly the big winners here.
Enlightened businesses and investors came to Paris for two reasons. They wanted to showcase their individual company actions (and there are many great companies doing a lot more than their fair share) but they also wanted to make their opinions known - the future is green, not brown, so let’s get on with it.
After Christmas, of course.