Powering Past Coal: Investors and Climate-Related Public Policy

AUTHOR: HELEN WILDSMITH, STEWARDSHIP DIRECTOR (CLIMATE CHANGE) AT THE CCLA

Increasing attention is being paid to the impact that climate change will have on the economy.

The Governor of the Bank of England, Mark Carney, has warned that unaddressed, climate change poses an ‘existential threat’ to our financial system. It is, therefore, not surprising, that more and more investors are paying attention to the likely impact that climate change, and the associated transition to a low carbon economy, is likely to have on the value of their investments.

Nearly 500 investors with $34 trillion in assets called on the heads of state gathering at the G20 back in May “to implement the actions that are needed to achieve the goals of the Paris Climate Agreement, with the utmost urgency”. This Global Investor Statement is part of The Investor Agenda which was launched last year to help investors and their membership bodies co-ordinate globally on climate change. In addition to policy advocacy, it covers investment, corporate engagement, and investor disclosure.

The media has been particularly interested in The Investor Agenda’s work on phasing out coal from electricity generation. A climate action area that is also being addressed by the UK and Canadian Governments’ multi-stakeholder Powering Past Coal Alliance (PPCA). After our Chief Investment Officer James Bevan spoke in the UK pavilion at the 2017 annual climate negotiations (‘COP23’), we decided to join the PPCA because we believe that a rapid phaseout of thermal coal is essential to reducing clients’ climate risks. Helen Wildsmith from CCLA was part of the PPCA ministerial panel at the 2018 annual climate negotiations (‘COP24’) last December, joining other members to discuss plans for 2019.

By the first week of June, the UK had achieved 18 days without using coal to generate electricity – the longest period since 1882. Quite an achievement given 40% of our electricity was generated from coal in 2012. However last year, 38% of electricity globally was still produced using thermal coal, which meant that coal-fired electricity generation accounted for 30% of all global CO2 emissions. This is one of the reasons why the UN Secretary-General continued to highlight coal ahead of the critical Climate Action Summit last month.

As noted in the government’s new Green Finance Strategy, we helped develop PPCA’s new Finance Principles in time for London’s first Climate Action Week earlier this year. The Finance Principles will enable more financial institutions to join PPCA so that the lessons we’ve learned during coal phaseout in the UK can be spread even more widely through investor action and advocacy, including for a just transition for workers and communities.

The PPCA is an example of our work under our Climate Change and Investment Policy. Amongst other actions, this policy requires us to: assess companies’ positioning against the Paris Agreement’s goals prior to investing; engage with companies, through initiatives like Climate Action 100+, to encourage the further development of Paris-compliant business models; and allocate capital to investments that will accelerate, and benefit from, the transition to a low carbon economy.

An important way of delivering systemic change at scale and pace is through the development of climate legislation and regulation. As part of the transition from high carbon power generation to lower-carbon technologies, there will be a shift in jobs and employment patterns. We believe it is critical that people and communities are not left behind. As a result, we support the Just Transition initiative for an inclusive pathway to this change. We look forward to ongoing work with the PPCA and The Investor Agenda founding partners in the run-up to ‘COP26’ in Glasgow next year. As the chief architect of the Paris Agreement Christiana Figueres noted peak emissions by the end of 2020 is ‘crazy but achievable’.

This document is issued for information purposes only. The market review, analysis, and any projections contained in this document are the opinion of the author only and should not be relied upon to form the basis of any investment decisions. CCLA Investment Management Limited (Registered in England No. 2183088) and CCLA Fund Managers Limited (Registered in England No. 8735639), whose registered address is: Senator House, 85 Queen Victoria Street, London EC4V 4ET, are authorised and regulated by the Financial Conduct Authority.