"Billions mobilized today will be trillions tomorrow" - AP4's CEO at COP21
INDC:s (Intended Nationally Determined Contributions) set out how countries in coming years will address the issue of climate change, both in terms of adapting to the physical impacts of climate change, as well as in terms of how they will decarbonize their economies.
I would like to share with you a fascinating story about a new, and very promising movement among institutional investors in relation to climate change. And I will tell you how this movement might become a new force - a real game-changer - in helping Governments decarbonize their economies as part of their INDC:s.
The story is that, finally, and in a very serious way, institutional investors - as the universal owners of corporation around the world ans as the largest pools of capital - are entering the game.
Investors have already in the last years been staunch supporters of ambitious climate policies; they have occasionally made green capital allocations; and they often engaged with portfolio companies on climate-matters and are more and more looking at the carbon footprint of their portfolio as illustrated by the success of the Montreal Pledge.
But only recently, over the last 18 months, have leading investors gone to the next level of action. They have started to rid their large, core & mainstream investment portfolios of the risks related to the low-carbon economy. They have started decarbonizing their investment portfolios; aligning their portfolios today with the low-carbon economy of tomorrow.
Portfolio decarbonization means investors integrating carbon information into portfolio design, not in an ad-hoc manner, but systematically; and hence signaling to companies that climate change, and the corporate respons to it, now is "centre stage", and critical to risk management, shareholder value, and investor interests going forward.
Leading investors are doing this because, after taking all the available information into consideration, they know that, in the medium term, there is no viable alternative to the low-carbon economic transition. This, in turn, means that if investors want to comply with their fiduciary duty, they today need to anticipate that economi transition and mitigate the resulting risks.
Since September 2014 investors who are leading on portfolio decarbonization have convened in the Portfolio Decarbonization Coalition - the PDC. The PDC was founded by UNEP- Finance Initiative, CDP, AP4 and Amundi and launched during the 2014 Climate summit in NYC under the umbrella of the United Nations.
PDC's success in the last 12 months has been noteworthy: ít set out to convene investors willing to collectively decarbonize a total of USD 100 billion in AUMs. As of today (December 7) PDC will have surpassed that target by a factor of 6, having mobilized 25 investors worldwide to decarbonize USD 600 billion of their investment portfolios.
How then does portfolio decarbonization support economic decarbonization which is, or should be, central to every INDC?
Economic decarbonization, in most places around the world, means a decarbonization of corporations and other private sector actors.
It is of course through the decision-making and capital-allocating of investors that those corporation are financed and valued, and that corporate executives are remunerated and incentivized. So if we manage to firmly and systematically "embed" decarbonization objectives into investor decision-making, we are effectively contributing to putting the financial clock-work that underpins today's market-based economies, across sectors and geographies at the service of the at-scale GHG emissions reductions that we need.
If a critical mass of investors decarbonize their portfolios this will significantly spur GHG-emissions-reductions in the real economy, significantly supporting countries' INDCs. And that is one of the prime objectives of the PDC.
To conclude: the financial sector is ready and is already taking action, and remember - billions mobilized today will be trillions tomorrow.