Major Investors Sign Climate Demand Letter of G7 Leaders on Eve of Summit

Large institutions investors representing more than $41 trillion in assets sent a strongly worded letter pressing the G7 governments to “set more ambitious emission reduction targets, detail “clear” road maps to decarbonize pollution-heavy industries and implement mandatory climate risk disclosure requirements,” CNN reported.  The asset managers were not subtle in their making their case — they said that countries that do not set ambitious emissions reductions targets with policies that put those countries clearly on a path toward achieving net-zero emissions will be at a competitive disadvantage when it comes to attracting funds for investment. In addition, a second letter from another group with $2.7 trillion in assets called on the government to require climate disclosures in securities filings.

Why This Matters: Money talks.  Investors are increasingly willing to walk away from deals like oil and gas drilling projects in the Arctic or investments in fossil fuel companies that refuse to change their business models.  But now they say that is not enough.  Governments need to drive change as well, but governments can’t make these policies stick unless the business community is squarely behind them.  As New York State Comptroller Thomas DiNapoli, who signed the letter, told CNN Business, “We’re in this together.”

Mandatory Climate Disclosures Coming?

The Chairman of the Securities and Exchange Commission (SEC) told Congress last month that he will introduce new rules later this year requiring corporations to disclose their climate risks.  That would suit the companies who wrote the SEC who argue that the current system does not provide investors with access to consistent, comparable, and relevant information regarding the risks the companies face due to climate change.  However, the US Chamber of Commerce pushed back saying that mandatory disclosures should be used to protect investors not to force certain policy goals beyond the scope of the securities laws.  Of course, it is entirely possible that these rules will do both — and that would be beneficial to shareholders as well as the planet.

Risk is High and Climbing

While people fret about inflation, the risk of the consequences of climate change keeps increasing — as European Central Bank President Christine Lagarde explained at a recent financial conference on green investment, “Our house is burning.”  And per CNN, Tobias Adrian, director of the IMF’s monetary and capital markets department, said that climate crisis could “absolutely” ignite a financial crisis. And solutions to the climate crisis need capital too.  In the letter to the G7, the investors argued that their “ability to properly allocate the trillions of dollars needed to support the net-zero transition is limited by the ambition gap between current government commitments,” the letter said, “and the emission reductions needed to limit global average temperature rise to 1.5-degrees Celsius.”  They “called on world leaders to ‘significantly strengthen’ their nationally determined contributions (NDCs) to battling climate change for 2030 and to ‘ensure a planned transition to net-zero emissions’ by 2050 or sooner.”

To Go Deeper:  Read the G7 investor letter here.

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