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'Beyond Hot Air': Protecting Value in a Changing Climate

by Helen Wildsmith

Posted: 18 Oct 2011

I am writing this article to coincide with a St Paul's Institute breakfast event that has been organised in conjunction with the £12bn Church Investors Group (CIG) this National Ethical Investment Week (NEIW: 16th - 22nd October 2011). NEIW was launched in 2008 to help individuals, families, Churches and charities reflect their values in their investments. It is modelled on Fairtrade Fortnight and has its own Action Guide for Churches. As a member of the CIG Steering Group I'm delighted that all the seats available in the Wren Suite at St Paul's Cathedral have been taken (I'm told that people are camping outside for returns!).

I have been involved in ethical and responsible investment for a decade, and climate change has been moving up the agenda throughout this period. Interest from those concerned about the financial implications of rising temperatures accelerated after the Stern Review was released five years ago to headlines like: "top economist counts future cost of climate change". Sir Nicholas Stern concluded that collectively we should invest now to counter the biggest market failure we've ever seen and avoid a severe recession later this century.

Church and charity investors are often concerned about climate change from both a "values" and "value" perspective. Investment returns need to be sustained over the long-term and coherence with an organisation's wider mission is important to many trustees and stakeholders. Some charity investors are even commissioning research to shed light on this complex systemic investment risk, e.g. CIG member Jospeh Rowntree Charitable Trust supported the production of "Unburnable Carbon: Are the world's financial markets carrying a carbon bubble?".

Wednesday's Breakfast attendees will hear from:

· John Elkington, co-founder and non-executive director of SustainAbility, who will remind attendees about the urgent challenges we all face.

· Will Oulton European head of responsible investment at Mercer, who will outline Mercer's new climate change scenarios and the implications for investors.

· David Blood, who co-founded Generation Investment Management with Al Gore, will explain how his firm and others in the City are responding to the challenge.

The techniques that concerned investors can use are the ones I outlined last year: ethical exclusions; influencing companies (and policy makers); treating investment as a marathon rather than a series of sprints; and selecting positive or high impact investments.

It is probably fair to say that most investor attention in the City and elsewhere has been on engagement with both companies and policy makers. The Carbon Disclosure Project (CDP) now has a global investor signatory base of $71tn and the CIG is proud that its own engagement work with FTSE350 companies here in the UK is recognised as a CDP case study. The Institutional Investors Group on Climate Change (IIGCC) has an active public policy working group, and I've met EU Commissioners, DECC negotiators and the UN's Christiana Figueres with other investors this year.

Many church and charity investors have signed this year's investor statement calling for "investment grade policies" at the domestic and global level. Given that Mercer's work indicates that the biggest climate-related risk for investors this decade is public policy uncertainty, this work is vital to our collective interests. Late and draconian policy intervention (for example see The One Degree War Plan) will not be good for investment portfolios because it will create the worthless "stranded assets" envisaged in the "Unburnable Carbon" report mentioned above.

Some churches and charities have gone further than engagement and are starting to lead the way by investing some capital into climate friendly investments and/or tilting their portfolios away from some of the most carbon intensive fossil fuels. For example, the Church Commissioners have some investments with specialist fund managers Generation and Impax, and the Church of Sweden has started tilting its portfolio away from fossil fuels into renewable energy.

However, it isn't time to rest on our laurels. Shell's 2008 energy scenarios booklet reminds us of the scale of the challenge we face during the transition to a low carbon economy:

"Limiting greenhouse gas (GHG) concentrations to 450 ppm CO2-equivalent is expected to limit temperature rises to no more than 2°C above pre-industrial levels. This would be extremely challenging to achieve, requiring an explosive pace of industrial transformation going beyond even the aggressive developments outlined in [Shell's] Blueprints scenario. It would require global GHG emissions to peak before 2015, a zero-emission power sector by 2050 and a near zero-emission transport sector in the same time period, complete electrification of the residential sector, with remaining energy-related emissions limited to niche areas of transport and industrial production (of cement and metals for example)"

Shell has also called for heightened collaboration between civil society, public and private sectors to address the economic, energy and environmental challenges the world is facing. UK Church and other institutional investors are rising to this and other calls for collaborative action and are planning to engage with the UK's largest utilities and extractives companies in order to encourage them to achieve an "A" Carbon Performance Band as measured in CDP's Global 500 report. This will probably involve supportive shareholder resolutions in 2013, which will mean that long-term investors' voices will be heard at Annual General Meetings (AGMs). The public will be able to ask their pension funds, insurance companies, and ISA providers which way they intend to vote. I will write more about this next year ....

As I wrote last year, getting started can seem daunting. It is far easier to buy fair-trade tea and coffee than sort out a church or charity's investments. Perhaps we should all resolve to take one clear step this National Ethical Investment Week. Will it be rediscovering the inter-generational equity aspects of fiduciary duty?

CCLA is owned by its Church and charity clients, for whom it manages the CBF Church of England Funds and the COIF Charities Funds. CCLA's sponsorship helped the Ecumenical Council for Corporate Responsibility (ECCR) and the NEIW team produce the Action Guide for Churches and has paid for the breakfast attendees will enjoy on Wednesday.

About this author

Helen Wildsmith is the Head of Ethical & Responsible Investment at CCLA Investment Management Limited.


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Disclaimer

The opinions expressed in this article are those of the author, and do not necessarily represent the views of St Paul's Institute or St Paul's Cathedral.