🔎 What’s going on?
Last month, working with the UN, the world’s largest pension funds and insurers have committed to achieving carbon-neutral investment portfolios by 2050.
😮 Wow, that’s big.
Absolutely! Given that the fossil fuel divestment (selling investments in coal, oil and gas companies) movement has been gaining momentum for less than a decade, this is a massive milestone. Initiated by Allianz, the Net-Zero Asset Owner Alliance represents more than 2.4 trillion USD.
🚦Why should I care?
The key lever that investors have in their toolbox is their ability to allocate cash within their portfolios and following the golden rule of investment, investors are always looking to diversify their risks. Pension funds and insurance companies tend to invest over a long-term horizon and hence hold a unique power to invest in businesses that they believe will thrive over the long term. By shifting their portfolios to cleaner industries (e.g. solar, wind, electric vehicles), we are not only more likely to hit the Paris Agreement of 1.5°C but it also sends a strong market signal to encourage business practices, products and technologies that are sustainable. So far Environmental, social and governance (ESG) investments have been considered a niche area of investment but it looks like ESG is finally going to go mainstream.
👎 Great, so are we there yet?
Mmm... not quite. The global asset management industry is worth approx. 74 trillion USD, this means that only 3.24% (2.4 trillion USD) of the industry has committed to aligning with science. Bearing in mind that the divestment campaign also represents pledges worth 11 trillion USD - this movement is certainly gaining favour. However, while fossil fuel alternatives currently exist for the energy sector, they don’t for the aviation and shipping sectors.
👤 What can I do about it?
If you are a student, persuade your university to divest or if a campaign doesn’t already exist - start one today here.
If you are working, chances are you contribute to a pension - so give your pension provider a call and find out where your money is being invested in. Either switch your pension provider or switch to ESG funds if your current provider has one.
If you are an investment manager, based on the impending climate risks consider moving your funds away from stranded assets.