Three degrees of warming is not an option for long-term investors

Since the Paris Climate Agreement in 2015, the United Nations has published an annual report on the state of climate change. Not unexpectedly, the report again paints a shocking picture; “The earth is becoming three degrees warmer, despite current climate plans and the corona virus,” the Financieel Dagblad headlined Thursday, December 10. We can imagine that one wonders whether the two degrees, or preferably the one and a half degrees, of warming that can keep the earth somewhat in balance is still possible.

The status now is comparable to a bucket that is 93 percent full. At the current rate of emissions, this means we still have 10 years before the bucket overflows. The interpretation of this metaphor indicates: more ambitious measures are needed to prevent dangerous climate change.

Institutional investors, in many cases long-term investors, can make a big difference through the influence of their own investing and investment portfolios. The Net-Zero Asset Owner Alliance formed by the UN is an example of how investors can join forces to limit a global temperature rise to 1.5 ° C, with a climate-neutral investment portfolio, by 2050. The goal of this alliance is explicitly to reduce emissions in the ‘real economy’, by entering into dialogue with companies, sectors, asset managers and policymakers.

What if the bucket does overflow and we continue on the three-degree path expected by the United Nations? The impacts of climate change on the global economy, such as through sea level rise and changing weather patterns, as well as subsequent impacts such as biodiversity loss, food shortages and migration, are simply becoming too great. Long-term investors who want to work against climate change can roll up their sleeves and collaborate internationally with the sector and other stakeholders, anew, with the aim of reducing emissions in the real economy – and not just on paper.

About a year ago, 50 large Dutch financial institutions committed themselves, within the climate agreement, to come up with reduction targets for all their relevant financing and investments by 2022, at the latest. The Association of Investors for Sustainable Development and the World Wildlife Fund are calling on institutional investors to show leadership and, like a number of front runners, to join international initiatives such as the Net-Zero Asset Owner Alliance. This enables them to work with other institutional investors towards a 1.5 ° C target.

To answer the question about the report about three-degrees of warming: yes, it is still possible to steer for two to one and a half degrees of warming, not to overflow the bucket and prevent dangerous climate change. Let’s take every opportunity together while it is still in our own hands.

Nicolas Poolen (Green Finance Consultant at WWF-NL) and Mart van Kuijk (Project manager Responsible Investment & Sustainability) work together from their organizations to raise awareness among financial institutions in the field of climate change.

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This article was previously made available on duurzaam-beleggen.nl (in Dutch).