Climate change is driving the world into financial crisis, say investors

Investors managing $32 trillion are accusing governments of failing to address the financial risks of climate change. John Dyer reports.

Could climate change precipitate a financial crisis? More than 400 investors managing more than $32 trillion think it might. (Image credit: euze via Flickr)

Politicians around the world stood idle as a real estate bubble, Eurozone debt and other risky financial practices triggered financial crises in 2008 and after.

Now they are failing to address storms, wildfires, droughts and other extreme weather that could precipitate another meltdown, according to more than 400 financiers who manage $32 trillion.

Governments need to do much more

“The global shift to clean energy is underway, but much more needs to be done by governments to accelerate the low carbon transition and to improve the resilience of our economy, society and the financial system to climate risks,” said the letter signed by pension fund managers, hedge fund traders, insurance executives, venture capitalists and others.

The investors delivered the letter on December 10 to world leaders meeting at COP24, of the United Nations Climate Change Conference, in Katowice, Poland from December 3 to 14.

They noted that, without swift action, global temperatures could rise by 4 degrees Celsius in the next 80 years, triggering changes in the weather, ocean levels, desertification and other changes that could cost $23 trillion in long-term economic losses, mitigation efforts and natural disasters, according to British asset manager Schroders, a signatory to the letter. That cost would be three to four times more than the 2008 crisis.

Politicians failing to act

But politicians are failing to act, the signatories said.

The presidents of the United States and Brazil, Donald Trump and Jair Bolsonaro, have threatened to pull out of the Paris Agreement, which sets parameters to keep temperatures from rising less than 2 degrees Celsius. French President Emmanuel Macron recently scrapped a gas tax to curb carbon emissions after demonstrators opposed it. China and India are reportedly on track to meet their Paris commitments to curb emissions, but they will still increase their emissions significantly under the agreement in order to lift hundreds of millions of their citizens out of poverty.

“The reality is that the long-term nature of the challenge has, in our view, met a zombie like response by many,” said Chris Newton, the Australia-based executive director of responsible investment at IFM Investors, which manages $80 billion, in a press release.

“This is a recipe for disaster as the impacts of climate change can be sudden, severe and catastrophic. We need our infrastructure assets to continue to provide essential services to communities and economies around the world. We have a duty to our investors to act for the long term when others are clearly sidestepping the challenge”.

No place for coal in clean energy future

Newton and others called on world leaders to phase out thermal coal power, put a meaningful price on carbon and eliminate fossil fuel subsidies over time. They noted that cutting fossil fuel subsidies along could cut global carbon emissions by 10 per cent through 2030, according to the UN.

Peter Damgaard Jensen, chair of the Institutional Investors Group on Climate Change and the chief executive of PKA, a Danish pension fund with $41 billion in assets, said investors were already helping the politicians by pulling their money from fossil fuels and putting it into green energy.

“There is no place for coal in the clean energy future that is essential to addressing climate change,” Jensen said. “It’s therefore encouraging to see ever more countries set necessary dates for the phase out of coal. Investors, including PKA, are moving out of coal in their droves given its devastating effects on the climate and public health, compounded by its poor financial performance.”

‘Misguided policies’ of Trump administration

New York State’s pension fund recently shifted $3 billion into its sustainable investment program, raising that fund to a total of $10 billion, for example, said New York State Comptroller Thomas P. DiNapoli, who manages the stare’s $207 billion pension system.

Trump didn’t represent the views of everyone in the US, said Napoli.

“Despite the misguided policies of the Trump administration, global efforts to address the very real threat climate risk presents to the economy, financial markets and investment returns are ongoing,” said DiNapoli.

“We are still in and remain committed to supporting the Paris Agreement’s climate goals. The transition to a low carbon economy presents numerous opportunities to create value, and investors who ignore the changing world do so at their own peril.”

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