Investors with $37tn in assets have banded together to urge for action against global warming as world leaders gather in Madrid for the UN’s COP 25 conference on climate change.
The group of investors, which includes big names such as UBS Asset Management and the California Public Employees’ Retirement System, want an end to fossil fuel subsidies, the phasing out of thermal coal used in power generation and a “meaningful” price for carbon.
More than 600 asset managers and asset owners have signed the initiative, but the world’s two largest investors — BlackRock and Vanguard — have not.
UN secretary-general António Guterres warned last week that “life itself” is in danger if the world does not step up its efforts to combat climate change. Some investors foresee a similarly apocalyptic future for the financial markets.
Until regulators hammer out a plan for an orderly transition to a low-carbon economy, investors cannot know what their investments are worth, and that creates a “catastrophic” risk to global financial stability, said Helena Viñes-Fiestas, deputy global head of sustainability at BNP Paribas Asset Management.
“The last financial crisis will look like a kid’s game compared with what could happen.”
One of the biggest worries for investors is the treatment of “stranded assets”, such as oil, coal and gas reserves, which could become unusable depending on climate legislation.
The UK, France and a handful of other countries have announced they will achieve net zero carbon emissions by 2050, but almost none have enacted policies to reach that goal. The Trump administration’s decision to pull the US out of the Paris climate accord, the main multilateral drive to tackle global warming, further muddies the waters for investors.
The investor group said that to help mitigate this problem, governments should throw their full weight behind the Task Force on Climate-related Financial Disclosures, an initiative backed by Bank of England governor Mark Carney that outlines how companies should measure and disclose the risks they face from climate change.
Incoming regulation could wipe as much as $2.3tn, or 4.5 per cent, off the value of global stock markets, the Principles for Responsible Investment, a UN-backed sustainable finance network, has predicted.
“We think there is widespread underpricing,” said Nathan Fabian, chief responsible investment officer for the PRI. Of the nearly 2,600 signatories to the PRI, Mr Fabian believes only about 2 per cent are currently prepared for how climate policy could affect their investments.
However, he stressed it was not too late and there is still time for investors to act and reposition their assets.