Investors managing more than $41 trillion in assets are loudly calling on world leaders to immediately step up their climate game if they don’t want to miss out on a wave of clean energy investment.
More than 450 major investors signed a letter that was released Thursday urging governments to set more ambitious emission reduction targets, detail “clear” road maps to decarbonize pollution-heavy industries and implement mandatory climate risk disclosure requirements.
The letter, signed by Fidelity, State Street and other influential asset management firms, marks the strongest call yet from investors urging governments around the world to take bolder steps to fight the climate crisis. And it comes just as the leaders of G7 nations meet in the United Kingdom to discuss the Covid-19 pandemic, climate change and other major global issues.
“These gaps — in climate ambition, policy action and risk disclosure — need to be addressed with urgency,” the signatories wrote in the letter.
The not-so-subtle warning is that countries that drag their feet risk being left behind as investors send their money elsewhere.
“Those who set ambitious targets in line with achieving net-zero emissions, and implement consistent national climate policies in the short-to-medium term, will become increasingly attractive investment destinations,” the letter read. “Countries that fail to do so will find themselves at a competitive disadvantage.”
New York State Comptroller Thomas DiNapoli, who signed the letter, told CNN Business that governments around the world need to adopt policies to protect the planet.
“We’re in this together,” DiNapoli said in an email. “Investors can’t address the climate emergency on their own, but governments can’t reach climate solutions without investors.”
Bolder goals needed
The coalition of investors called on world leaders to “significantly strengthen” their nationally determined contributions (NDCs) to battling climate change for 2030 and to “ensure a planned transition to net-zero emissions” by 2050 or sooner.
In April, President Joe Biden announced the United States will aim to slash greenhouse gas emissions by 50% to 52% below 2005 levels by 2030.
However, the investor group, which also includes Allianz Global Investors and the California Public Employees Retirement System (CalPERS), warned that “all governments” must ramp up those goals to limit the global temperature rise.
“Our ability to properly allocate the trillions of dollars needed to support the net-zero transition is limited by the ambition gap between current government commitments,” the letter said, “and the emission reductions needed to limit global average temperature rise to 1.5-degrees Celsius.”
The signatories added: “If we do not meet this challenge and change course immediately, the world could heat in excess of 3-degrees Celsius this century.”
DiNapoli said the goals of the NDC as laid out by Biden are “solid, but we need more information about how we’re going to achieve them.”
“We’re looking for tangible investments in the infrastructure bill and other proposals that will provide a road map,” he said.
Mandatory climate disclosures ahead?
In a separate letter from 180 investors with $2.7 trillion in assets, dozens of nonprofits and 155 companies including Apple (AAPL), Uber (UBER) and Salesforce (CRM) called on the Securities and Exchange Commission to mandate climate disclosures. The group argued that companies and investors need access to consistent, comparable and reliable information to assess the risks posed to the economy and specific companies.
“While there will be a cost for compliance with SEC climate disclosure rules,” the letter said, “it is far less costly to companies and their investors than ignoring the risk.”
Gary Gensler, chairman of the Securities and Exchange Commission, recently told Congress he plans to introduce new rules around corporate climate disclosures later this year.
Last month, the US Chamber of Commerce opposed a bill that would require the SEC to establish climate-related risk disclosure metrics and public companies to disclose their financial and business risks linked to climate change.
“Disclosures should be used to protect investors and should not be used as a means to achieve policy goals outside the scope of the federal securities laws,” the Chamber wrote in a letter.
‘Our house is burning’
The debate over how to respond to the climate crisis comes amid rising awareness from the public, business leaders and regulators about the consequences of climate change.
Federal Reserve Chairman Jerome Powell said last week “there is no doubt” that the climate crisis poses “profound challenges for the global economy and certainly the financial system.”
European Central Bank President Christine Lagarde urged fellow central bankers to acknowledge how the climate crisis could cause “financial instability” and make it difficult for central banks to manage the economy.
“Our house is burning,” Lagarde said at the Green Swan Conference.
Tobias Adrian, director of the IMF’s monetary and capital markets department, told CNN Business the climate crisis could “absolutely” ignite a financial crisis.
Mindy Lubber, the CEO of Ceres, a sustainability nonprofit that helped organize the investor letter, said investors are aware of the substantial risks in getting climate policy right.
“Investors know that the impacts of the climate crisis are systemic financial risks,” Lubber said in a statement, “and will worsen, if left unchecked.”