Asset owners must keep up pressure on governments and regulators to introduce a price for carbon emissions, after the Paris climate agreement failed to commit to concrete action.
Mats Andersson, managing director of Sweden’s AP4, said the UN Climate Change Conference was undoubtedly a “great success”.
But he argued that the most important matter was not the conference itself but what occurs in the wake of the agreement reached by nearly 200 governments last week.
He said a price on carbon was inevitable despite the agreement’s only including wording that recognises the “important role” of reducing carbon emissions through policies such as carbon taxes and emissions trading schemes.
“I would like to have a price on carbon at some point,” Andersson told IPE. “It’s not ‘if’, it’s ‘when’, and the sooner the better.”
His view was shared by Edward Mason, head of responsible investment for the UK’s Church Commissioners, responsible for the Church of England’s endowments and pension funds.
Mason said carbon pricing was “here to stay” but was less certain about how universal its application would be.
“It will be patchy, uneven and potentially quite unpredictable,” he said.
“There is tremendous value in investors engaging about [carbon pricing].”
Andersson argued that a carbon price would alter investors’ behaviour immediately.
“Once we have the carbon price, you will immediately see a flow of capital being re-allocated from the fossil industry or the fossil-dependent industry into other sectors – and you will get the companies to address this in an even more serious way.”
He cited the success of the “substantial” carbon tax in place in Sweden as evidence that growth and a carbon price were not incompatible.
Andersson and Mason were nevertheless positive about the conference’s achievements in Paris.
“All of us ignore the collective aspiration of governments at our peril,” Mason said.
He praised the inclusion of a ‘ratchet’ mechanism in the final agreement, which will see national reduction targets revisited every five years to scale up the level of reduction – the only way the current carbon-reduction targets, estimated to result in warming of 2.7°C above pre-industrial levels, will be able to meet the 1.5°C target envisaged.
Andersson said institutions should also begin “chasing” companies failing to pay enough attention to their carbon footprint.
AP4 is a founding member of the Portfolio Decarbonization Coalition, which has attracted support of asset owners worth $3.2trn (€2.9trn), willing to decarbonise $600bn in holdings.
Mason agreed with the importance of continued action, citing the need for investors to be “future-makers” and engaging with companies to ensure the new targets are being taken seriously.
“If [companies] are not thinking about business plans that are not consistent with a low-carbon economy,” he said, “then there is real risk attached to that.”