This post is by Catherine Howarth, chief executive of ShareAction and Green Alliance trustee.
The focus of the investment community, in the run up to the Paris COP21, was on the financial risks of investments in fossil fuel companies. Understandably so, as these companies’ profits and valuation depend on activities that directly contribute to climate change. While the divestment movement has called for large institutions to move their money out of fossil fuels, others have chosen to engage with companies which have carbon heavy business models, challenging them on their preparations for the inevitable shift to a lower carbon economy.
As the dust settles on the agreement reached at COP21, which aims to limit a rise in global temperatures to “well below” two degrees with ambition to reach 1.5 degrees, there can be no doubt that the shift in investment will accelerate. More than ever, investors need confidence that the companies whose stocks they buy and hold are prepared for a future in which consumption of carbon must, and will, decline.
The new energy landscape
But it’s not just the fossil fuel companies that investors need to engage with. As the ambition and scale of the deal reached in Paris begins to sink in, and the new energy landscape takes shape, many other large companies whose operations and supply chains emit and use large amounts of greenhouse gases are going to feel the impacts too.
The private sector currently accounts for half the world’s electricity consumption. To meet the obligations agreed in Paris, energy use in the corporate sector must be stable and sustainable. That’s why ShareAction brought together 20 institutional investors, representing £352 billion in assets under management, last week in Paris to launch an ambitious programme of dialogue with their investee companies, aimed at accelerating the uptake of renewable power in their global operations. These investors will engage with directors of the largest publicly listed companies on global stock markets to make the case for a rapid transition to 100 per cent renewable electricity.
A strong business case for renewables
For the companies themselves, the business case for switching to renewable power is compelling. It helps to manage fluctuating energy costs, provides energy security, delivers on emissions reductions targets and enhances their corporate reputation. It also sends a clear message to governments that there is strong and growing demand for renewable power. Such leadership from businesses and investors will be key to ensuring the targets set at COP21 can be achieved. With this commitment, companies can also boost market confidence in the renewables sector, enable long term investment and encourage further technological innovation.
During the Paris negotiations, mayors from over 450 cities announced ambitious plans to reduce carbon consumption, in large part by switching to renewable power. Community projects around the world have been taking great strides to show the multiple benefits of locally owned and controlled renewable power. And now 53 influential companies, including Unilever, Coca-Cola and Marks & Spencer, have already joined RE100, pledging their commitment to 100 per cent renewable electricity. It’s clear that the future is renewable.
Risk and opportunity for pension investors
For those of us saving for a pension, it’s our money that’s being invested in global companies whose energy consumption can have such a significant effect on the climate. Investing in companies that switch early to renewable electricity makes perfect financial and environmental sense.
Investors evaluating their portfolios in the aftermath of COP21 must inevitably consider the risks, which are now higher than ever, of investments in fossil fuels. They should also exploit the opportunities presented by early leadership in embracing renewable electricity across the corporate sector.
The more investors throw their weight behind this energy revolution, the more chance we have of stabilising and controlling climate change.
Visit ShareAction’s platform where you can email your pension fund and ask it to support renewable energy use.