Press Conference on Leveraging Private Investment to Develop Low-Carbon Economy

 

Investors were eager to invest in clean energy but needed public policies that would provide market certainty and minimize risks, participants in today’s Investor Summit on Climate Risk said at a Headquarters press conference.

Moderating the event, in which four high-level institutional investors took part, Mindy S. Lubber, President of Ceres, said that more than 500 leading global investors responsible for $22 trillion in assets had met at the United Nations today to advance an agenda focused on building a new low-carbon global economy designed to reduce the threat of climate change.

Emphasizing that trillions of dollars in investments were needed to build a clean-energy economy, she said some 85 per cent of that money would come from institutional investors, pension funds, hedge funds and other private investors.  However, the efforts of investors already beginning to address climate change could not succeed without Government policies that would provide the necessary market certainty that their investments would yield safe and competitive rates of return.

Anne Stausboll, CEO of the California Public Employees' Retirement System (CalPERS), which has some $200 billion in assets, said that in order to achieve long-term sustainability in the companies and markets in which it invested, a clean, sustainable economy was needed that would conserve natural resources, mitigate risks to those resources and pursue alternative energy opportunities.  However, without policies aimed at creating a stable investment environment, opportunities were limited.  Government action was needed now, both in the United States and around the world.  In the United States, there was a need for legislation that would include complete and timely reporting on environmental risks, a carbon price and federal incentives for investments in clean energy.

She said the “2010 Investor Statement on Catalyzing Investments in a Low Carbon Economy” -- issued by four investor groups representing more than $8 trillion in assets -- called on Governments to take immediate steps to catalyse the development of a low-carbon economy and attract the necessary private capital.  Those steps should include:  short- and long-term carbon emission reduction targets; carbon-pricing policies; accelerated deployment of energy efficiency, renewable energy and low-carbon transportation infrastructure; financing mechanisms to mobilize large-scale private sector global investments; measures to help developing and developed countries adapt to unavoidable climate impacts; and policies requiring corporate disclosure of material climate-related risks.

Bjarne Graven Larsen, Chief Investment Officer of the Danish Pension Fund ATP, who also represented the European Institutional Investors Group on Climate Change, stressed:  “Institutional investors are in the game for profit, not to save the world.”  The ability to handle climate risk and exploit climate opportunities would be important in the future for portfolio construction, he said, adding that his fund had tried to integrate all climate issues into its investment policies and had conducted dialogue on the impacts of climate change with companies in which it had invested.  However, it would only invest in projects expected to deliver relevant risk-adjusted returns and supported by national actions plans.  Developing partnerships with international financial institutions and regional development banks was of key importance.

Kevin Parker, Global Head of Deutsche Asset Management, which manages $700 billion on behalf of clients, said that climate change was a “mega trend” with enormous implications for the investment community.  The shift to a low-carbon economy was pervasive, affecting all industries worldwide, as well as the investment landscape.  While research by Deutsche Asset Management, accessible on dbcca.com, had confirmed that high-carbon-intensive companies would in the future under-perform relative to low-carbon intensive ones, the business world was asking for legislation and clarity on the carbon issue as uncertainty made long-term decision-making difficult.  Countries with proper regulations based on transparency, longevity and certainty were attracting investments, creating jobs and creating wealth, as exemplified by Germany.

Rob McCord, Treasurer of the State of Pennsylvania, stressed the need for speed, jobs and innovation, noting that speed was most important, calling on the United States Senate to pass climate change regulation rapidly.  “The longer we wait, the lesser the return per action, both in terms of the good done for the environment and in terms of job creation.”  Germany had five times the number of wind-power jobs created than the United States and four times the number of jobs related to solar power.  The sector was growing at three times the rate at which the total economy was expanding.  The global aerospace and defence industry had created less revenue in 2009 than the green and energy efficiency industry.

He said proven technologies already existed, but there was a need for the right regulatory constraints and incentives to reflect total cost-pricing, including the externalized costs of production, such as pollution.  There was also a need for financial innovation to provide the necessary liquidity.  Pennsylvania had led the United States with its home energy loan programme, helping middle and lower-middle class people gain access to millions of dollars to reduce the carbon footprint of their homes and lower their energy bills.  The loans were 99 per cent repaid and, as they were not re-sold, more creditworthy than mortgage-backed securities.  Pennsylvania looked to the energy sector not only to do good, but also to do well.

Asked for examples of policies that worked, Mr. Parker said Germany had implemented “feed-in tariffs” -- payments for the production of renewable power.  The laws governing them were very transparent and provided a great deal of certainty to investors.  The combination of transparency, certainty and longevity gave investors the comfort necessary to risk investing in new energies.  Job creation in renewable energy sources outpaced other industries worldwide, he noted.

A price and cap on carbon was also necessary to send a signal to the market, he continued, pointing out that in 2012, utilities and airlines, among other industries that had hitherto been given a free pass, would come under the regulatory framework.  Once carbon was priced realistically, and capped, the cost of traditional fossil fuels and that of renewables would start to look similar.  Another area was energy efficiency, he said, noting that 40 per cent of all carbon emissions came from buildings built in an era of minor energy costs.  Energy efficiency measures such as better windows and insulation would save tons of carbon emissions.

Asked about a statement by Google that technology advances could be competitive without carbon pricing and policy changes, Ms. Lubber said the $10 trillion investment commitment required over 20 years would not happen without public policies.  In 2009, $140 billion had been invested in clean technologies, a figure that was expected to rise to $190 billion in 2010.  However, that was not enough.  There was a need for honest accounting with a price on carbon pollution costs.  A level playing field was necessary with fair incentives, not just incentives for the coal industry.

Mr. Parker added that millions of jobs were being sacrificed as the Senate remained “stuck”, and there would be a measurable cost to the United States economy in the short run (jobs) as well as the long run (costs of mitigation).  To have price accurately reflect real costs was simply “the right thing to do”, not only in terms of moral obligation, but also in terms of efficiency.

Responding to a question about greenhouse gas reduction targets, Mr. Larsen said that globally, long-term reduction should amount to between 50 per cent and 85 per cent reduction, the biggest part of that to be borne by developed countries.  The cost of transferring to a low-carbon economy would be higher the longer they waited.  Since the December conference in Copenhagen, India, China and Brazil had developed national action plans for climate change.  Investors would invest in countries with “very ambitious” national climate action plans, which so far did not include the United States.

Asked for recommendations to utility companies, Mr. Parker suggested they change to natural gas, which was now trading at its lowest level.  With new discoveries, there would be abundant supplies for “a long time”.

Ms. Lubbers added that utility companies reluctant to address the issue should realize that, at some point, there would be a policy change.  They should not only sell electricity, but also efficiency.

Mr. McCord remarked that Pennsylvania depended on coal for 56 per cent of its energy needs, but was moving towards cleaner energy.  The sequestration of carbon emissions might become a possibility, and research on that subject was invaluable, but it might also turn out to be too difficult.  Utilities were based on a regulatory structure, and a regulatory shift was needed to make them part of the movement towards clean energy.

Asked what the United States had gained from Copenhagen, Ms. Lubbers said it had more to give than it had received, but it had secured a clear and transparent commitment from China.

Mr. Larsen added that all countries were now under the same agreement and the United States had succeeded in making China, Brazil and India sign up to it.  Action must be taken on a bipartisan and multilateral basis.  In Copenhagen, the United States had stressed that climate change was a common problem, for both the developed and developing worlds.

* *** *

For information media • not an official record