Climate change has changed how the world works. It is also starting to change the choices of investors. For the first time, a clear financial perspective on moving investments in the face of climate change has been released.
Last week, Bloomberg New Energy Finance released a new white paper in the context of climate change, called “Fossil Fuel Divestment – A $5 Trillion Challenge,” which also discusses renewable energy investment.
Overall, there is a large challenge ahead: if we remove $5 trillion of investment from coal, oil and gas, where do we put it? Investment tools still must improve before those funds can flow to renewable energy or energy efficiency.
That said, there are possibilities and good options that exist today.
As BNEF says in their paper, “Fossil fuel divestment is neither imminent nor inevitable. But, neither is it impossible for motivated investors.”
Ending investment in coal, oil and gas is indeed possible – today.
Here is why:
1. Ending investment in coal, oil and gas – “fossil fuel divestment” – has become a way for institutions to act on climate change.
For example, Storebrand – a private pension fund provider in Norway – has ended its investments in 23 coal and tarsand companies explicitly because of climate change.
“In the past two years, dozens of public and private institutions have announced plans to divest fossil fuels from their portfolios – a movement one executive described as “one of the fastest-moving debates I think I’ve seen in my 30 years in markets.” – BNEF.
2. Investors are getting out of coal, oil and gas for both financial and moral reasons.
Financially, climate change policies have the ability to make coal, oil and gas more costly and risky, as well as less profitable. This, in turn, weakens the rationale for keeping such investments within a portfolio.
If the world’s governments succeed in taking sufficient action on climate change with bold policies, this could limit coal, oil and gas from development beyond a certain point, making those investments ‘stranded assets’.
Morally, investments in coal, oil and gas directly support fossil fuel energy infrastructure and use – the main cause of today’s extreme global warming.
“’Fossil fuel divestment’ is a concept that can reflect various societal or practical considerations. Environmental concerns, moral and ethical stances, concerns about asset stranding, and portfolio diversification are all potential rationales.” – BNEF.
3. Investments in clean, renewable energy and energy efficiency are essential to acting on climate change.
In order for this to happen at the scale required to address climate change – $1 trillion per year by 2020 – clean, renewable energy will require reformed financial structures and new financial instruments. Both fossil fuel divestment, as well as political and ethical drivers as mentioned above can help catalyze this innovation.
“Investment vehicles can change this [fossil fuel investing] paradigm… Clean energy will attract $5.5 trn in investment between now and 2030…” – BNEF.
4. You can make an incredible difference (more than ever before.)
The most interesting paragraph in this white paper is perhaps the last one:
“Perception can change this paradigm. For all of the tools available for financial analysis, institutional investment remains fundamentally human. People choose portfolios, and people assess risk. Clear-headed investors may look at fossil fuel equities and weight them… [against] public perception.” – BNEF.
The choices of individuals and their own savings and pensions matter in influencing the choices of banks and financial institutions, just as the votes of citizens influence the financial choices of elected governments.
The world is changing quickly. The world of investments and energy is also changing.
Join us September 21 in a global march on climate change, in cities around the world to call for governments and institutions to move their money at the UN Climate Summit on September 23. Investments must move. You are essential to making it happen.
Zoe Caron is the co-author of Global Warming for Dummies and a senior campaigner for WWF’s global investment campaign Seize Your Power. firstname.lastname@example.org