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Key takeaways from Climate Investment Summit: Global carbon pricing, offsetting and de-risking

Copenhagen conference brought together speakers from policy, industry, pensions and investments

The Climate Investment Summit in Copenhagen set an ambitious tone for COP26 with delegates agreeing the investment community is ready for urgent changes that will allow finance to meet the needs of the climate emergency.

These include global carbon pricing, long-term targets, clear direction from governments, de-risking in emerging economies and mandatory climate disclosures.

The two-day conference hosted by Climate Investment Coalition brought together speakers from policy, industry, pensions and investments to discuss investment in climate solutions in the next decade.

A message to COP26

Speakers agreed COP26 should provide clear cohesion. “What we need from COP26 are some clear parameters that will pull us all together, align us and get us working together,” said Helen Dean, CBE, CEO of Nest.

“Everything is at stake now,” added Odd Arild Grefstad, CEO of Storebrand Group, who said an emissions tax could add crucial momentum.

“Taxes on emissions need force behind them. If we could have a global carbon price, that would be fantastic and would move the elements around renewable energy much faster.”

Self-imposed carbon taxation

In an example of the gear change being seeing in climate investment, speaking at the summit Henry McLoughlin, director of advocacy at Capricorn Investment Group, explained how the fund manager is instilling the urgency required in its decarbonisation efforts by self-imposing a carbon tax.

The group calculated it had 700,000 tons of CO2 emissions across all its $8bn of holdings.

“We decided to fully offset, starting this year, all of our emissions across our investment activities, by investing primarily in forestry in tropical areas.

“We essentially decided to tax our own carbon emissions and that is creating behaviour change within our investment team. All of a sudden, we are faced with different investment opportunities and see the carbon emissions associated with those investment opportunities and sees them as a cost.

“Ultimately, we see [carbon emissions associated with investments] as a cost that will impact our profit and loss and our compensation. This is going to be a powerful tool to make the right allocation decisions and also make sure the companies we invest in are on a very rapid trajectory to decarbonise as fast as they can.”

McLoughlin suggested all investment groups should be calculating the cost of their activities in this way and warned that investors need to ready themselves for a rapid pace of change.

“This is not looking like it will be an orderly transition. Last year $700bn of value was destroyed in oil and gas companies. The same year electric car companies, electric truck companies and renewable energy companies created $1trn of value for their shareholders. These are not incremental changes. This happened in three months.

“There is going to be blood on the streets when we are done with this. There is going to be a huge amount of value destroyed and created and it is going to happen very quickly. We can’t be left just holding spreadsheets with emissions data when it happens. We need to make decisions to prepare ourselves for these changes.”

Hurdles for policymakers

In the same discussion – on financing net-zero ambition – Kate Forbes, Scotland cabinet secretary for finance, spoke about the fact Scotland has done the easy stuff when it comes to decarbonising. Now it faces the real challenges.

“The robust statutory framework we have has supported our emissions being reduced by more than half the way to net zero, with a 51.5% reduction achieved between 1990 and 2019. But as is often said, we have done all the easy things and now the hard work really starts to tackle emissions in sectors and industries that just haven’t shifted as much.”

Apart from the nature of the sectors and industries yet to decarbonise, Forbes said a major challenge for policymakers in particular is setting long-term goals. She argued they must do this, however, as the goals are crucial for investment to be able to play its part.

“Government is not good, in any policy area, at setting long-term targets, for anything. Governments come and governments go and investors have to adapt and respond to big swings in the policy environment. With climate change we have this unique opportunity to provide long-term targets and therefore I think policy is very important.”

She noted the Scottish government’s climate change plan does provide guidance for government in the future, enabling investment in the low-carbon economy with more confidence.

Positive tipping points

In a later panel conversation returned to the need for governments to set a pathway investors could confidently follow with Anne Richards, CEO of Fidelity International, mentioning carbon pricing policy as one area leaders could be focusing on.

“More dramatic progress could still be achieved if we could get government to use clear policy signals to speed up the transition and create that tipping point. Whether it is through direct regulation or global carbon pricing or other systemic means.”

Christina Grumstrup Sørensen, senior partner at Copenhagen Infrastructure Partners, also expressed confidence positive tipping points could be reached. She commented that green energy might get us there.

“In terms of tipping points, I don’t think we as a society have fully understood what the low-cost electricity from renewable production will provide in terms of opportunities for other sectors.

“We are starting to see we can have green hydrogen production through electrolysis whenever renewable power prices are really low or even at excess at some points. And that will fuel new investments in new renewable production infrastructure.”

Grumstrup Sørensen used the example of low-cost renewable energy being used to make green steel, which is in high demand from car manufacturers.

De-risking in emerging economies

She reiterated the role government has of speeding things up to create certainty for investors. Yet Ahmed Bahr, director of project facilitation and support, IRENA, said in emerging economies it would not work to wait for these national policy shifts, but was instead better to work at a project level.

“In emerging economies, the situation is actually totally different. There is a need to lay the groundwork to attract investment, starting with the most big, difficult part – de-risking the environmental, social and governance in physical and in virtual terms.

“If you take this problem at country level it will take ages and ages and not achieve anything. It is much easier and better and more successful to start with project intervention. From there you can fix this very global environmental, social and governance structure that will basically attract investors.”

Bahr mentioned green hydrogen, which will require trillions of dollars of investment, including in emerging economies, but also requires more work to de-risk transportation and handling. ​

Full disclosure

On the second day of the summit delegates considered the disclosure of climate-related risks.

Isabel Munilla, director, US financial regulation at Ceres Accelerator for Sustainable Capital Markets, took the chance to look ahead in the regulatory space and said we are bound to see benefits from harmonisation of regulation.

“Climate Action 100+… is in touch with regulators around the world. It is very specific about what it needs from climate disclosure so in that context it is no surprise we are seeing a flurry of harmonisation work among regulators in the EU, the US, Canada.

“They are working on bank regulation, climate disclosure, systemic risk regulation. This is really positive and we will see some benefits from that.”   

She said she was confident there will be mandatory climate disclosure rules introduced by the Securities Exchange Commission in the US next year. But concluded regulators continue building the runway for green investment but need constant support from the investment community.

“At least in the US there are absolutely brilliant rank and file financial regulators that are very passionate, very committed, they understand the gaps, and they are thinking of their children and grandchildren and what they need to do to protect them and their wealth.

“But to give them the political cover, they need to hear from us. They need to hear from you, the audience and they need to hear consistent signals to keep moving forward. I’m optimistic that were going to continue to get some signals from regulators to provide the runway for all of us to do this work.”