The Asset Owners Disclosure Project (AODP) annual report has revealed that climate change is rapidly moving up the agenda for the world’s biggest investors. Pension funds and insurers are recognising the need for action to protect the savings and the financial security of hundreds of millions of people.
Ninety seven of the world’s 500 biggest investors with $US9.4 trillion in funds are taking tangible action to mitigate climate change risk and last year saw a big rise in support for shareholder resolutions and low carbon investment, according to the fourth Global Climate 500 Index. Another 157 investors, worth $14.2 trillion, are taking their first steps.
Despite this, very few investors are acting on warnings from the G20’s Financial Stability Board that climate action could leave fossil fuel and other high-carbon investments as worthless stranded assets, and 246 investors, with $14 trillion in funds, are ignoring climate change risk completely.
Julian Poulter, CEO at AODP, said: “Climate change risk is now a mainstream issue for institutional investors and last year has seen many significantly step up their action to manage this.
“However, only a handful are protecting their portfolios from the very real danger of stranded assets, and it is shocking that nearly half the world’s biggest investors are doing nothing at all to mitigate climate risk.
“Pensions funds and insurers that ignore climate change are gambling with the savings and financial security of hundreds of millions of people around the world and risking another financial crisis.”
The independent non-profit AODP rates the world’s 500 biggest investors on their success at managing climate risk within their portfolios, based on direct disclosures and publicly available information.
They include pension funds, insurers, sovereign wealth funds, foundations and endowments, with $38 trillion of assets under management (AUM). They are graded from AAA to D while those taking no action are rated X.
Investors that recognise climate risk are taking significantly more action than last year, the report reveals. The leaders, rated A to AAA, have grown 29 per cent from 24 to 31 investors with $2.7 trillion AUM. On average, these 12 AAA-rated institutions have outperformed the benchmark return over five years, demonstrating that climate risk can be managed without sacrificing returns.
The Global Climate 500 Index is the world standard for assessing the success of asset owners at managing climate risk. It evaluates them on three approaches: tackling risks associated with high-carbon assets in their portfolios, engaging with the companies they own and with stakeholders throughout the investment chain to reduce climate risk, and investing in low-carbon assets.
This year AODP has raised the bar, requiring evidence of tangible action and no longer scores purely for transparency or commitments.
Ten per cent of asset owners and 74 per cent of the leaders group (rated A to AAA) are measuring carbon in their portfolios, up from seven per cent and 67 per cent last year. However, only two per cent of asset owners have declared a target for reducing portfolio carbon next year.
Just five per cent of asset owners and only half the leaders disclose that they are measuring the impact that stranded assets may have on their investments – although this is an improvement on the three per cent last year. This indicates that more complex risk management activities are often the last to be implemented.
Thirteen per cent of asset owners and 97% of leaders now have staff dedicated to integrating climate risk management into the investment process, up from 9 per cent and 79% last year.
Support for shareholder resolutions on climate change has grown strongly, with 12 per cent of investors voting in favour of at least one, compared with seven per cent last year. Among leaders support grew from 67 per cent to 84 per cent.
Low-carbon investment grew 63 per cent from $85 billion to $138 billion. General lack of disclosure and difficulties defining low-carbon assets mean this is likely to be an underestimate but funds are working to define this better for next year.
The Netherlands is the most active country by far with $39 billion invested in low-carbon. The UK’s Environment Agency Pension Fund has 26 per cent of its portfolio in low carbon assets, the highest in the index.
Mark Carney, Governor of the Bank of England and chairman of the international Financial Stability Board (FSB), has warned that climate change action could make huge reserves of coal, oil and gas unburnable stranded assets threatening investors with huge losses and destabilising markets.
The FSB has set up a task force to recommend how asset owners and other financial intermediaries should report the potential impact of climate change on their bottom line.
Christiana Figueres, Executive Secretary of the UN Framework Convention on Climate Change (UNFCCC), said: “The Paris Agreement has set out the path, direction and ultimate destination for the global economy. Increasing numbers of asset owners understand this and more are coming to that realization. I would encourage all of them to pick up the pace and ramp up their ambition in respect to a low carbon transition—it is the key to reducing risk and securing the health of their portfolios now and over the long term.”
The $4 billion Environment Agency Pension Fund tops the Global Climate 500 Index closely followed by Australia’s $7.1 billion Local Government Super, each coming top or second in all three categories and proving that size is no barrier to managing climate risk.
Other leaders include giant institutions which have been active in campaigning for climate action, $391 billion Dutch pension fund ABP and the $301 billion California Public Employees Retirement System, both rated AAA, and UK insurer Aviva with $445 billion of assets, rated A.
Frances’s £180 billion Caisse des Dépôts has jumped from a CC rating to a AA, while and $51 billion Swedish pension fund AMF and the UK’s $26 billion Greater Manchester Pension Fund are both up from D to A.
Scandinavian asset owners are taking the most action to manage climate risk. Sweden tops the Country Index, followed by Norway, and Denmark comes fifth. France, where the Paris Climate Summit brought climate risk into sharp focus, takes fourth place with three funds in the top 20 for the first time.
Pension funds account for nearly two thirds of the index and insurers nearly a quarter. However, only four of the seven countries that dominate the global pensions market make the top ten in the Country Index. Australia are third, the Netherlands sixth, the UK seventh and the US ninth and all are well represented in the leadership group of institutions rated A to AAA. Canada ranks 11th, Switzerland 14th and Japan 25th.
Japan’s Government Pension Investment Fund, the world’s largest asset owner worth $1.2 trillion, is rated D, up from X last year. It has committed to taking environmental, social and governance factors into account in its investments and has started asking its asset managers what they are doing to promote better behaviour in the companies it owns.
Julian Poulter added: “Asset owners in Japan and Switzerland have shown no leadership on climate change and are putting their members and clients at risk. It is the countries with more transparent financial systems where asset owners are more accountable to their members where we are seeing most action.
“This makes it significant that GPIF, the world’s largest asset owner, has taken the first step on the journey to protecting millions of Japanese pension holders from the risks of climate change. We look forward to further action and we hope it will send a signal to a market which has been ignoring the issue for far too long.”
The World Bank has been a leading voice warning about climate risk and high carbon investment, but the report reveals that its $17 billion Group Staff Retirement fund is not translating this into strong action. It is rated D, up from X in 2015. By contrast the UN’s $52 billion Joint Staff Pension Fund is up from A to AA.
The ten biggest X-rated funds, worth a total $4.9 trillion, include sovereign wealth funds in the oil states of Abu Dhabi, Kuwait, Saudi Arabia and Qatar as well as China and Hong Kong, insurance companies China Life, Japan Post and Zenkyoren of Japan, and the US pension fund, Thrift Savings Plan.
Will Self-Driving Cars Be Better for the Environment?
Technologists, engineers, lawmakers, and the general public have been excitedly debating about the merits of self-driving cars for the past several years, as companies like Waymo and Uber race to get the first fully autonomous vehicles on the market. Largely, the concerns have been about safety and ethics; is a self-driving car really capable of eliminating the human errors responsible for the majority of vehicular accidents? And if so, who’s responsible for programming life-or-death decisions, and who’s held liable in the event of an accident?
But while these questions continue being debated, protecting people on an individual level, it’s worth posing a different question: how will self-driving cars impact the environment?
The Big Picture
The Department of Energy attempted to answer this question in clear terms, using scientific research and existing data sets to project the short-term and long-term environmental impact that self-driving vehicles could have. Its findings? The emergence of self-driving vehicles could essentially go either way; it could reduce energy consumption in transportation by as much as 90 percent, or increase it by more than 200 percent.
That’s a margin of error so wide it might as well be a total guess, but there are too many unknown variables to form a solid conclusion. There are many ways autonomous vehicles could influence our energy consumption and environmental impact, and they could go well or poorly, depending on how they’re adopted.
One of the big selling points of autonomous vehicles is their capacity to reduce the total number of vehicles—and human drivers—on the road. If you’re able to carpool to work in a self-driving vehicle, or rely on autonomous public transportation, you’ll spend far less time, money, and energy on your own car. The convenience and efficiency of autonomous vehicles would therefore reduce the total miles driven, and significantly reduce carbon emissions.
There’s a flip side to this argument, however. If autonomous vehicles are far more convenient and less expensive than previous means of travel, it could be an incentive for people to travel more frequently, or drive to more destinations they’d otherwise avoid. In this case, the total miles driven could actually increase with the rise of self-driving cars.
As an added consideration, the increase or decrease in drivers on the road could result in more or fewer vehicle collisions, respectively—especially in the early days of autonomous vehicle adoption, when so many human drivers are still on the road. Car accident injury cases, therefore, would become far more complicated, and the roads could be temporarily less safe.
Deadheading is a term used in trucking and ridesharing to refer to miles driven with an empty load. Assume for a moment that there’s a fleet of self-driving vehicles available to pick people up and carry them to their destinations. It’s a convenient service, but by necessity, these vehicles will spend at least some of their time driving without passengers, whether it’s spent waiting to pick someone up or en route to their location. The increase in miles from deadheading could nullify the potential benefits of people driving fewer total miles, or add to the damage done by their increased mileage.
Make and Model of Car
Much will also depend on the types of cars equipped to be self-driving. For example, Waymo recently launched a wave of self-driving hybrid minivans, capable of getting far better mileage than a gas-only vehicle. If the majority of self-driving cars are electric or hybrids, the environmental impact will be much lower than if they’re converted from existing vehicles. Good emissions ratings are also important here.
On the other hand, the increased demand for autonomous vehicles could put more pressure on factory production, and make older cars obsolete. In that case, the gas mileage savings could be counteracted by the increased environmental impact of factory production.
The Bottom Line
Right now, there are too many unanswered questions to make a confident determination whether self-driving vehicles will help or harm the environment. Will we start driving more, or less? How will they handle dead time? What kind of models are going to be on the road?
Engineers and the general public are in complete control of how this develops in the near future. Hopefully, we’ll be able to see all the safety benefits of having autonomous vehicles on the road, but without any of the extra environmental impact to deal with.
New Zealand to Switch to Fully Renewable Energy by 2035
New Zealand’s prime minister-elect Jacinda Ardern is already taking steps towards reducing the country’s carbon footprint. She signed a coalition deal with NZ First in October, aiming to generate 100% of the country’s energy from renewable sources by 2035.
New Zealand is already one of the greenest countries in the world, sourcing over 80% of its energy for its 4.7 million people from renewable resources like hydroelectric, geothermal and wind. The majority of its electricity comes from hydro-power, which generated 60% of the country’s energy in 2016. Last winter, renewable generation peaked at 93%.
Now, Ardern is taking on the challenge of eliminating New Zealand’s remaining use of fossil fuels. One of the biggest obstacles will be filling in the gap left by hydropower sources during dry conditions. When lake levels drop, the country relies on gas and coal to provide energy. Eliminating fossil fuels will require finding an alternative source to avoid spikes in energy costs during droughts.
Business NZ’s executive director John Carnegie told Bloomberg he believes Ardern needs to balance her goals with affordability, stating, “It’s completely appropriate to have a focus on reducing carbon emissions, but there needs to be an open and transparent public conversation about the policies and how they are delivered.”
The coalition deal outlined a few steps towards achieving this, including investing more in solar, which currently only provides 0.1% of the country’s energy. Ardern’s plans also include switching the electricity grid to renewable energy, investing more funds into rail transport, and switching all government vehicles to green fuel within a decade.
Zero net emissions by 2050
Beyond powering the country’s electricity grid with 100% green energy, Ardern also wants to reach zero net emissions by 2050. This ambitious goal is very much in line with her focus on climate change throughout the course of her campaign. Environmental issues were one of her top priorities from the start, which increased her appeal with young voters and helped her become one of the youngest world leaders at only 37.
Reaching zero net emissions would require overcoming challenging issues like eliminating fossil fuels in vehicles. Ardern hasn’t outlined a plan for reaching this goal, but has suggested creating an independent commission to aid in the transition to a lower carbon economy.
She also set a goal of doubling the number of trees the country plants per year to 100 million, a goal she says is “absolutely achievable” using land that is marginal for farming animals.
Greenpeace New Zealand climate and energy campaigner Amanda Larsson believes that phasing out fossil fuels should be a priority for the new prime minister. She says that in order to reach zero net emissions, Ardern “must prioritize closing down coal, putting a moratorium on new fossil fuel plants, building more wind infrastructure, and opening the playing field for household and community solar.”
A worldwide shift to renewable energy
Addressing climate change is becoming more of a priority around the world and many governments are assessing how they can reduce their reliance on fossil fuels and switch to environmentally-friendly energy sources. Sustainable energy is becoming an increasingly profitable industry, giving companies more of an incentive to invest.
Ardern isn’t alone in her climate concerns, as other prominent world leaders like Justin Trudeau and Emmanuel Macron have made renewable energy a focus of their campaigns. She isn’t the first to set ambitious goals, either. Sweden and Norway share New Zealand’s goal of net zero emissions by 2045 and 2030, respectively.
Scotland already sources more than half of its electricity from renewable sources and aims to fully transition by 2020, while France announced plans in September to stop fossil fuel production by 2040. This would make it the first country to do so, and the first to end the sale of gasoline and diesel vehicles.
Many parts of the world still rely heavily on coal, but if these countries are successful in phasing out fossil fuels and transitioning to renewable resources, it could serve as a turning point. As other world leaders see that switching to sustainable energy is possible – and profitable – it could be the start of a worldwide shift towards environmentally-friendly energy.
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