The $50trillion cost of climate transition is ‘the biggest commercial opportunity of our time’, said former Bank of England governor Mark Carney, speaking at a Make My Money Matter conference this week.
Carney outlined why pension funds, as long term investors, are particularly exposed to climate risk, and warned that ‘not thinking about terminal value could prove terminal’ for those that ignored the issue of stranded assets.
Carney was speaking at Make My Money Matter’s Net Zero Pensions Summit. Other speakers included Alok Sharma, President of COP26, Christiana Figueres, former Executive Secretary at the United Nations Framework Convention on Climate Change, Nigel Topping, UN High Level Climate Action Champion, Mary Robinson, former President of Ireland, Amina Mohammed, UN Deputy Secretary General and representatives from major international pension providers such as Aviva, Nest, Scottish Widows, Pension Danmark, CBUS Australia and Brunel.
Carney urged pension providers and funds to join the Glasgow Alliance For Net Zero (GFANZ), and described the UN convened Net Zero Asset Owners Alliance as the ‘gold standard’ for net zero commitments. Research published by Corporate Adviser earlier this year found asset managers are signed up to at least 134 different pledges, campaign groups, steering bodies and other activist organisations.
He said the Task Force on Climate Related Financial Disclosures (TCFD) will be consulting later this month on metrics for the alignment of portfolios to net zero targets, and will issue final guidance just before COP26 in November.
Carney said: “Pension funds that are overseers of $50trillion globally are critical in seeing that we make that transition to net zero. Addressing climate change is obviously in the world’s interests but increasingly pension funds realise it is also in their interest, because climate risk is investment risk. “The scale of stranded assets is only starting to be appreciated. Not thinking about terminal value in a world on the road to net zero could prove terminal for some portfolios. Moreover, addressing climate change is an enormous commercial opportunity. Achieving net zero requires a whole economy transition. That means every company, every insurer, will have to change their business model. In consequence it is turning an existential risk into what I would argue is the biggest commercial opportunity of our time. We mentioned the $50trillion earlier, well over $3.5 trillion per year is needed for sustainable investments alone. The International Energy Agency suggested the figure is another trillion dollars higher every year for the energy sector.
“In April Nigel Topping and I and others launched the Glasgow Alliance For Net Zero, or GFANZ, which brought together the world’s biggest banks, asset managers, insurers, asset owners, including pension funds. GFANZ brings together 160 firms who are responsible for over $70tr of assets and they are going to work together to help acceleration of the financial sector, but ultimately what matters the global economy, to meet that goal of net-zero by 2050 at the lasest.
“At the heart of it is the UN convened Net Zero Asset Owners Alliance, which includes those pension funds.
“The private finance strategy for COP26 is going to provide the tools, the information and the markets so that pension funds and others can assess and manage climate risk and seize the opportunities. To improve the information provided by companies, the information you need to seize these opportunities we are working towards a common mandatory framework for climate risk based on the TCFD recommendations. The UK is leading the way by making the TCFD mandatory by 2025 for all companies, and other countries are following suit.
“International standard setters are taking action, particularly the IFRS, whose reporting standards will reach into 140 countries. And the IFRS is looking to establish the Sustainability Standards Board by Glasgow.
“This is about managing risk. Pension funds are long term investors, with long term risks and are therefore among the most vulnerable to the risk posed by climate change. At the same time your horizon provides an opportunity to be at the frontier in investing in the kind of climate resilient infrastructure and in catalysing the decarbonisation infrastructure the economy needs.
And as a sector you are hugely influential in aligning asset managers, proxy organisations and companies themselves towards net zero objectives.
“What is critical is to move beyond commitments but actually to align portfolios to net zero, and communicate that to those you serve. And to that end the TCFD will be consulting later this month on portfolio alignment metrics and it will issue final guidance in this critical tool just before COP26.
Investors, including pension funds need to provide answers for when people ask whether their money is being invested in line with their values, in line with the transition to net zero. The challenge to the industry is to make a meaningful metric so that people can make their money matter. This campaign is a catalyst that the financial sector and citizens need to support the transition. And it is also supporting the financial sector as you make that transition, working closely with us in the private finance hub, with COP26, and directly complementing GFANZ, that gold standard for net zero commitments and climate action. I complement those of you already with us, and urge the rest of you to take the plunge and join the Net Zero Asset Owners Alliance.”
Richard Curtis, Co-Founder of Make My Money Matter said: “In hosting this summit, we hope to give voice to the millions of savers around the world who want to make their money matter and encourage all remaining pension providers to commit to robust net zero targets that not only remove carbon from their portfolios entirely by 2050, but also halve their emissions by 2030 at the latest. In doing so, we can ensure the $47 trillion in global pensions helps build a future we actually want to retire into.
“Since we launched in June 2020, 15 providers have committed to net zero, meaning there is now more than £400bn worth of pension money working toward tackling the climate crisis. However, there is still a long way to go.
Christiana Figueres, Founding Partner, Global Optimism and former Executive Secretary, UNFCCC said: “History will remember this decade as the turning point, the moment we finally woke up to the fact that despite – or because of – shocks like Covid-19, decoupling economic growth from harmful greenhouse gas emissions is now inevitable. Our pension pots must bring the future forward by committing to invest in the new energy revolution.”
For video of the event, click here