A more coherent regulatory environment is needed if investors are to prevent “runaway climate change”, according to Donald MacDonald, who chairs the Institutional Investor Group on Climate Change (IIGCC).
“We have the capital, but the right policies and regulatory frameworks are not in place,” said MacDonald. “In many cases energy regulation, pensions regulation and insurance regulation are simply not integrated. The IIGCC has been engaging with the European Commission about the perverse impact that well-intentioned regulation might have, for example, on issues around energy unbundling and pension and insurance fund solvency.”
MacDonald was addressing the sixth annual Private Equity International Responsible Investment Forum, co-hosted with the Principles for Responsible Investment (PRI), in London on Tuesday. The IIGCC comprises around 110 financial institutions with combined funds under management of more than EUR10 trillion.
MacDonald highlighted the developments that leave us exposed by climate change, such as rapid urbanisation, a population rising from seven billion to ten billion by the end of the century and “the great strategic issues of water, food and energy that are all open to stress owing to climate change.
“All the signs are that we shall miss the ‘2⁰C scenario’ that is attempting to limit global temperature to within 2⁰C relative to the pre-industrial temperature level. Many observers take the view that we are on course for a rise of between 3.5⁰C and 4⁰C. Every fraction of a degree of increase takes us all ever closer to the tipping point for runaway climate change where the consequences are unimaginable.
“As investors, whether pension funds, fund managers, general partners or limited partners, we need to think about the consequences of our investment policies and decisions.”
MacDonald outlined how pension fund trustees and fund managers have a fiduciary duty to ensure that climate change does not threaten investment returns. A large part of this, said MacDonald, is about lobbying policy makers to ensure the regulatory framework is conducive to low carbon investing.
“Business as usual is not a serious option for policy makers who have, or should have, a fundamental duty of care towards their citizens.”
MacDonald hailed the fact that ESG issues – as well as carbon and climate change – has become a mainstream discussion point within financial services and in particular that the private equity industry is “deeply involved”.
“LPs and GPs are well placed to help make that transformational step change that the world needs, but we need to have real leadership from policy makers and I sincerely believe that investor engagement with them is not only highly desirable but absolutely necessary.”
The Responsible Investment Forum was held on Tuesday 23 June 2015 at the Marriott Grosvenor Hotel in London. It was co-hosted by PEI and Principles for Responsible Investment. Now in its sixth year, it is the leading conference tackling environmental, social and governance issues (ESG), in private equity investing:
