Investing and Divesting for the Climate

I trust you have heard about your Carbon Footprint. The things you do in your life cause greenhouse gases emissions and heat up the climate -- the car you drive, the plane you take, the hamburger you have at the corner restaurant. But did you know that your investments cause just as many emissions as your daily activities do?

A recent study from WWF Sweden and PwC has revealed exactly that. Through the social security system, sovereign wealth funds and church funds, among other, all of us are investors. This crucial piece of information has been picked up by many, not least by professional investors and future pensionists.

The pressure on investors to start thinking seriously about climate change is arising from many directions: a progressively more vocal divestment campaign from the US has gained global pull. Go Fossil Free, a leading group of this campaign, argues that it is "morally wrong to profit by investing in companies that are causing the climate crisis," shooting the topic of investments and climate change high on the agenda. The upcoming Global Divestment Day this Friday represents the culmination of the fastest growing divestment movement the world has ever seen. The movement calls for institutions, organizations and individuals to show climate leadership and to end their financial backing for the fossil fuel industry.

While an array of investors are slowly taking measures to divest from fossil fuels, a circle of heavyweight actors are for the first time considering the climate impact of their investments: the $851M heavy Rockefeller Brothers Fund drew out funds from fossil fuel investments last September, the Church of Sweden has announced that its hefty assets of 691M are now completely fossil free and Norway's largest manager of pension funds, KLP, has decided to sell off all its investments in companies that derive 50 per cent or more of their revenues from coal based operations. Last but not least, just this week the world's wealthiest sovereign wealth fund Norges announced its divestment from 114 companies with the aim to strengthen its work on responsible investment. Norges argued there to be "high levels of uncertainty about the sustainability" of the companies' business models it divested from.

Nonetheless, outright divestment is only one way to deflate the growing carbon bubble; it's a single jigsaw piece in a larger puzzle. Climate change appears to be included on a rapidly growing amount of investor's agendas. Carbon emissions are increasingly seen as a risk, and responsible solutions to climate change as an opportunity. During a period ravaged by extreme weather conditions paired with high price tags for clean-up, struggling governments are looking for new solutions to increase climate resilience. According to the World Economic Forum, green investments for climate-change adaptation and mitigation in 2011 were valued at $96 billion from the public sector and at a whopping $268 billion from the private sector. Last year also saw a record high for the young green bond market, tripling from 2013 to $35billion in new issuances in 2014. With such a vital market, the World Bank sees the size of green bonds growing and new types of issuers entering the field.

Fossil fuel divestments and green investments are outcomes of responsible investing -- but for many, the first step is transparency. Understanding the investment carbon footprint is the basis for taking action. Driven by public -- and subsequently political -- pressure, industry players have been cleaning up the road leading to COP21: in the run up to the crucial climate talks in Paris, over 30 large institutional investors have committed to provide wider transparency regarding their investment portfolios. Some have gone as far as to pledge to measure and publicly disclose the carbon footprint of their investment portfolios on an annual basis. Positive development has been made easier by a wider range of tools and services that exist for investors to determine the climate impact of their portfolios. Additionally, there are low-carbon alternatives with no difference in returns.

The sustainable solutions we have today are all thanks to an educated public asking the right questions to best transform the economy to one that remains below the two degree threshold. A public that makes every penny count for a better climate. Every euro or dollar invested can either cause or combat climate change. Happy divestment day!

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