Idea dearth at big money sustainability summit
Tom Rand, P.Eng., Ph.D., is Cleantech Lead Advisor at MaRS Disovery District and author of Kick the Fossil Fuel Habit. Any views expressed are his own.
Curious about new financial innovations to accelerate the global transition to a low-carbon economy, I attended the recent United Nations Environment Program Finance Initiative (UNEP FI) summit in Washington, D.C. This was a gathering of big money and those who shape its flows – pension funds, insurance companies, policy wonks and political negotiators.
Not surprisingly, I found nothing mind-blowing.
Our intentions are good, but we move – as always – incrementally. Catastrophic climate change still doesn’t fit our spreadsheets. Pension funds still rely on voluntary principles of risk avoidance.
But hats off to Paul Abberley, CEO of Aviva Investors out of London, England, for the best idea of the conference. Abberley wants to translate, directly, the good intentions of pension contributors into the fiduciary duty of investment managers.
Anyone on the carbon scene knows we’re at a standstill. There are bright spots like California’s brand new cap and trade regulations and Ontario’s Green Energy Act, and there are always some intrepid businesses that carve out a market for their piece of low-carbon infrastructure.
Energy retrofits are occasionally aggregated to attract a few hundred million dollars. But the big money, the trillion dollars a year we need deployed to move the needle on carbon, still sits in the wings.
Large capital will not be unlocked without political direction and price certainty on carbon, no matter how progressive or well-meaning a fund manager might be. So it’s around the COP merry-go-round we go again.
Two decent attempts to break this impasse are the Carbon Disclosure Project (CDP) and the Principles for Responsible Investment (PRI). Between the two programs, large capital flows were supposed to gush into the low-carbon sector.
Identifying a company’s exposure to carbon risk should reduce capital flow to high-carbon industries.
Adherence to responsible long-term thinking is meant to deliver better long-term returns. CDP and PRI are meant to be filters to enable a fund manager to deliver better long-term performance. They are meant to change investment decisions.
But do they?
The CDP is voluntary, and until the carbon risk is made tangible, it remains an afterthought in everyday investment decisions.
The PRI has become more a method of measuring what you’re already doing, rather than changing how you do it. It’s a way of generating metrics, not changing decisions.
So along comes Abberley’s deceptively simple idea.
Imagine a teacher, a pension fund, and an investment manager. The teacher contributes bi-weekly to the fund. And an investment manager, somewhere down the line, invests that money. There’s no real link between the two. If you asked the teacher how they would like their money invested, they might say “I want a decent return, and I want to retire in a decent world.” Voila. Buliding a decent world means making different investment decisions. If that intention is passed through to the investment manager, we’d change capital flows.
Sounds so simple, doesn’t it?
It’s a way of making tangible the fiduciary duty of the investment manager to the funds contributors – directly, and not through third-party metrics like PRI.
To do it, just aggregate the expressed opinions of all those teachers, police officers, factory workers and public servants. Survey, anyone?