Responding to climate change will require some significant changes in where investments flow in our economy. If we think about the role that investment plays in addressing climate change, we can compare between two investment actions: investing money to promote a low carbon economy, or divesting away from the fossil fuels that cause climate change in the first place.
Let’s start with divestment.
Led by 350.org, the divestment trend has been spreading globally and so far, over 180 cities, universities and other institutions have committed to divest. Even the UN is on board with divestment. The most recent participant is Norway’s Government Pension Fund Global, which recently divested from 114 companies. These actions have led to the creation of a Global Divestment Day, which occurred earlier this month.
So far, an estimated $50 US billion has been divested from fossil fuels.
The divestment trend has been a bit slower in Canada. While there are over 30 active divestment campaigns across Canadian universities and colleges, only a handful of institutions have even considered divestment. In fact, just this winter Concordia became the first Canadian university to divest. More broadly, there are limited examples of Canadian institutions or investors who are playing an active role in this field and even fewer low-carbon options for investment managers to pursue.
But how effective is divestment to address climate goals?
Recent research conducted by the Pacific Institute for Climate Solutions concludes that emissions will likely not decrease as a direct result of divestment. However, the research notes that divestment can be effective when divested funds are reinvested into the low carbon economy.
Irrespective of their tangible impacts, these divestment campaigns have sparked a much needed discussion on investing in low-carbon energy and the importance of forward-looking investment portfolios in the creation of a low carbon future.
So what about investment?
Redirecting investment is no small feat. The International Energy Agency estimates that $53 trillion in cumulative investment in energy supply and energy efficiency will be need by 2035 to avoid a 2 degree global warming. But investors and business leaders have stepped up to the challenge by promoting a goal of $1 trillion (the Clean Trillion) in clean energy investment every year until 2050.
Sustainable Prosperity (SP) has stepped up too. Our recent work looks at how green bonds can be a useful investment tool to support the creation of the green economy. For more on this be sure to check out Alex’s blog or policy brief.
And along with the 367 investors representing more than US $24 trillion in assets who signed the Global Investor Statement on Climate Change, SP supports carbon pricing as one tool for redirecting investment to a low carbon economy.