The recently published report by the UN Intergovernmental Panel on Climate Change (IPCC) leaves no room for doubt. Man-made climate change is “widespread, rapid and intensifying. Immediate action is needed to avoid the worst: a climate breakdown this century. That is the unequivocal message to policy makers, the corporate sector, but also to us individually as consumers and citizens. The necessary radical change can only be realised if the whole world society changes course.
Financial institutions play a vital role in this crisis by directing capital in the right direction by financing sectors and industries to transition towards a greener and more inclusive society. More innovative and blended forms of finance are needed to finance the right solutions to counter climate change. Hans Stegeman, Chief Investment Strategist at Triodos Investment Management: “The fastest way forward is to bring public and private capital together with a primary focus on impact, rather than financial returns.”
Triodos IM also advocates a better pricing of the risks of climate change and to immediately stop financing fossil fuels. Stegeman: “Pricing in and monetising the effects of climate change will force business to adapt and integrate the effects of climate change in their decision making. Climate change is not just a long-term transition risk that is being discussed on a theoretical level, but rather a systemic risk that could materially impact businesses. In addition, regulation should become stricter. There has already been put a lot of effort into defining what is ‘green’. But the IPCC report makes all the more clear that more effort should be put in making ‘brown’ assets more costly. Regulating a climate transition is helped by mandatorily disclosing financing fossils.
A necessary first step is to divest from those energy giants that do not transition to renewable energy. At Triodos Investment Management we show how to successfully operate a financial institution that does not finance fossil fuels. As per our strict minimum standards, we exclude fossil fuels and unconventional oil and gas. We urge other financial institution to follow suit and stop financing fossil fuels. This will increase the cost of funding for these fossil fuels companies and accelerate the transition towards sustainable energy generation.
Although engagement activities can help moving companies in the right direction, we believe that further escalation is needed on the topic of climate change. There simply is no time left to start lengthy dialogues and engagement programs with oil majors who are seemingly unwilling to change or transition. We cannot wait three decades for the results of moderate plans, when ‘strong, rapid, and sustained’ emission reductions are needed right now.
Read more about the important role of the financial sector in our article ‘Reset investing’.