Given the extraordinary outcome of the US elections, institutional investors head to the latest round of UN climate talks in Marrakesh this week sanguine about the considerable uncertainty that now surrounds the global climate policy agenda.
Nevertheless, as crucial negotiations get going at COP22, investors remain optimistic the urgency implied by the latest science and by the economic imperative to secure a low-carbon economy must continue to drive significant climate action.
Considerable political momentum has accrued around the climate agenda over recent weeks – not least through the Kigali Amendment on hydrofluorocarbons (HFCs) and the Paris Agreement coming into force on 4 November. Alongside this, renewables have overtaken coal as a global power source, electric vehicles have become the growth segment of the auto industry and new jobs in the clean energy sector have outpaced job growth in any other area. Moreover, this shift is clearly visible in the US where, for example, major new investment in renewables is driving significant job creation in places like the Texas heartland of oil and gas.
So it is against that backdrop that IIGCC members joined by colleagues from US, Australian and Asia, head to Marrakesh over the coming days to reinforce one key message: that a growing number of investors – like countries, businesses and cities across the globe – are taking swift action to manage climate risk and drive a swift and smooth low-carbon transition.
The role of the IPCC
The latest climate science is uncompromising. As Hoesung Lee, chair of the UN's Intergovernmental Panel on Climate Change, said in a recent interview: humanity has a two-in-three or 65% chance of holding global warming to 2°C by the end of this century … only when we decarbonise electricity supply and reduce overall greenhouse gas emissions by 40 -70% (relative to 2010) by 2050, and achieve net emissions approaching zero by 2100.
IPCC must secure approval in Marrakesh for the outline of its next report in 2018, which it is proposed should examine what has to happen to curb global warming to 1.5°C or less.
On Friday, at one of only ten business-led official UNFCCC side, and in private with high-level decision makers next week, investors will showcase the actions they've taken over the year since the gavel was brought down in Paris. Some of this activity is highlighted on a factsheet posted to the website of the Global Investor Coalition (a collaborative umbrella for IIGCC and the other three investor networks).
They will also be arguing vocally for the importance of both public and private finance flows to drive the low-carbon transition through substantial new investment in clean energy, green infrastructure and climate resilience.
The Paris Agreement is the result of robust international co-operation to address the climate threat. It does not stipulate specific cuts, but does set up a system that requires all countries to volunteer what they are willing to do (so called Nationally Determined Contributions), to monitor their progress and to ramp up their efforts every five years from 2020.
What COP22 must deliver is procedural clarity about the practical regime that will govern these vital arrangements. In particular, COP22 must deliver a clear deadline for all Parties to agree how to run the all-important '2018 Facilitative Dialogue' for raising ambition after 2020.
Investors will also be watching closely the discussions on several issues of particular concern. In particular, the benchmarks selected for monitoring, reporting and verification are all acutely sensitive, especially given that different countries already use a variety of them (for example, the EU measures progress against levels in 1990, Japan to 2013 after they switched back to coal from nuclear, and many more want to use 2015 levels).
Equally contentious will be the detailed timeline under which developed nations channel more aid to the developing countries who need both to curtail their own emissions and adapt to/mitigate the frontline impacts of climate change through, for example, early warning systems, risk assessment and management, and risk insurance.
Negotiators must also make enough progress on how to secure $100 billion per year of public and private climate finance by 2020 to be within reach of securing an agreement on this issue at COP23 in 2017. Within this, reporting mandates will be key – not least how far donor countries must report projected levels of finance they have made and plan to provide, as well as how far recipient countries should report on finance needed and received.
Investors went to Paris last year determined to secure what we called 'an unequivocal long term signal', i.e. a specific goal that will keep global average temperature rise below 2°C. We also pressed for, and secured, a mechanism within the architecture of the Agreement whereby each country must steadily raise its ambition over time in order to deliver the pace and scale of emissions reduction required to achieve that goal. In Marrakesh we will continue doing all we can to help the COP Presidency harness political momentum – along with the urgency implied by the latest science - to nail clear agreements amongst the Parties on the rules and tools required to implement it.
Stephanie Pfeifer is CEO of the Institutional Investors Group on Climate Change, a European forum for 128 investors with more than €13 trillion of assets