A dozen of the world’s largest money managers have joined a growing list of professional investors in converting their trillions of dollars of investments into the kind of financial muscle that can lead to positive change to avert climate change.
Fourteen firms with almost US$5 trillion in combined assets under management, including the world’s third-largest manager State Street Global Advisors, said they have signed up to the Net-Zero Asset Managers Initiative launched last December. The new signatories will have to submit a voluntary interim target within a year on the proportion of assets to be managed in line with reaching net-zero emissions by 2050 or sooner, and report their progress annually.
The inclusion of the 14 expands the list of signatories to 73, with US$37 trillion of combined assets under management. The kind of financial muscle – roughly equivalent to the combined economy of the United States and China, or 40 per cent of worldwide money under management – is a crucial adjunct to this week’s Earth Day summit, where scores of world leaders including the Chinese President Xi Jinping are scheduled to join US President Joe Biden in coming up with action plans to stem climate change.
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“Sustainability and clean energy are secular megatrends, and the US-China relationship in the context of climate change will significantly impact the landscape and markets for sustainable investing in the years ahead,” said Alex Wolf, JP Morgan Private Bank’s head of investment strategy.
Corporate participation is a critical part of the joint effort for the world to release less carbon dioxide and other greenhouse gases. By exercising the voting powers that come with shareholdings, environmentally conscious investors can compel their portfolio companies to adopt business practices that adhere to guidelines of sustainability and governance (ESG).
The stakes have never been higher. As many as 9,000 publicly trade companies, with a combined market value of US$70 trillion across 50 global stock markets included in the MSCI All Country World investible Markets index are estimated to release the equivalent of 11.2 gigatons of carbon dioxide in greenhouse gases every year.
“Without any change to current practices, the annual emissions of these companies could reach 16.8 gigatons of [carbon dioxide equivalent] by 2050, leading to a planet that is 3.5 degrees Celsius warmer by the end of the century,” MSCI said on Wednesday. “This trajectory shows the tremendous challenge in reaching net-zero and the urgency to act now.”
The world’s banks have an outsize role to play in the industries that they finance. Forty-three banks from 23 countries, with US$28.5 trillion of combined assets, have banded together to form the Net-Zero Banking Alliance to align their lending and investment portfolios with new net-zero emissions by 2050. HSBC, Standard Chartered and Citi are among the signatories of the accord, along with Seoul-based Shinhan Financial Group and KB Financial Group.
Chinese President Xi Jinping surprised the world last September when he pledged at the United Nations General Assembly that the world’s largest emitter of greenhouse gases will cap emissions at a peak by 2030, before the country becomes carbon neutral by 2060.
After Biden’s inauguration on January 20, the US rejoined the Paris Agreement to close ranks with the 195 signatories that have committed to pursue policies to limit global warming to well below two degrees under the ambit of the United National Framework Convention on Climate Change. He is widely expected to unveil ambitious targets to drastically slash emissions, including a 50 per cent cut from 2005 levels by 2030, nearly double the 26-28 per cent pledged by the Obama administration.
Joint action by the US and China on climate change, in the midst of a bruising trade war and the worst bilateral relations in decades, is much needed, as the two largest economies are also the biggest emitters of greenhouse gases on the planet. On Saturday, both government said they are “committed to cooperating” with each other, after several days of meeting in Shanghai between Biden’s climate envoy John Kerry with China’s environment minister Xie Zhenhua.
“The summit this week is a milestone on the way toward the November global climate summit in Glasgow,” said David Waskow, international climate initiative director at Washington-based research organisation World Resources Institute. “Things that China should be looking [to potentially offer] include its 2030 target. Our research has shown that it could peak its emission by 2026.”
Accelerated reduction of coal-fired power generation capacity and more explicit target on the share of renewable energy beyond 20 per cent by 2025 and 25 per cent by 2030 would also provide a clearer road map for China’s decarbonisation, said Sanford Bernstein senior analyst Neil Beveridge.
Environment advocates have criticised Beijing for funding coal projects abroad and allowing coal-fired power capacity to expand, even as China is also building renewable energy projects at a much faster pace.
But Michelle Manook, chief executive of London-based World Coal Association, which represents miners, argued that clean coal consumption should still form a key part of the global energy mix even as some nations seek to become carbon neutral by 2050.
“Coal and renewable energy need to coexist if we are serious about meeting those climate targets,” she said. “A 100 per cent renewables is not a credible scenario. We need baseload energy like coal.”
The joint US-China statement said they intend to take appropriate actions to maximise international investment and finance to support the transition from fossil fuel-based to low-carbon and renewable energy in developing countries.
China, as the world’s largest maker of solar panels, batteries storage systems, has enormous opportunities to work with other countries, to enable them to ramp up their use of renewable energy and battery storage for electric vehicles and electricity generation, said Waskow.
Three quarters of global lithium-ion battery production, half of all electric vehicles and almost 70 per cent of all solar panels are made in the country, according to energy and metals consultancy Wood Mackenzie.
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