Setting the sustainability agenda

While many sustainable investors and environmental groups were dismayed by the recent US election results, it is important to recognise that the election of Donald Trump—and to a large extent Brexit in the UK—reflects a growing unhappiness and dissatisfaction on the part of millions of people who feel that existing financial systems, policymakers and structures are not working in their favour.

The PRI recognises that many people across the world feel left behind by globalisation and are still feeling the outcomes of the global financial crisis.

They have seen Wall Street bailed out, while they have been left with the bill, and to struggle with cuts in services, the loss of jobs and real wages in decline.

People are looking for something different, for markets and a system that works for them, not against them, which is why the PRI is undertaking work, in collaboration with our signatories, on creating a more sustainable financial system.

This work aligns closely with the PRI’s mission, which calls for it to promote a sustainable global financial system that supports long-term value creation and benefits the environment and society as a whole. It also aligns to the UN Sustainable Development Goals (SDGs) announced last year, notably, SDG1, whereby a healthy financial system can help curb income inequality.

On a practical level, convincing the President-elect that his mandate to stimulate growth and re-energise the job market by improving ageing US infrastructure would benefit from a sustainable focus is a challenge that investors groups should rise to.

No one can dispute that America’s dilapidated roadways, bridges, waterways, electricity grid, telecommunications and other essential services are desperately in need of modernisation.

The American Society of Civil Engineers has estimated that $3.6 trillion would need to be invested in US infrastructure by 2020 just to raise the country’s support systems to acceptable levels. From a commerce standpoint, America’s crumbling infrastructure is undermining its productivity and competitiveness.

A smart way for the President-elect to begin his mandate would be to invest in sustainable infrastructure projects that create jobs and use the latest technologies and innovation but do not harm the environment and are “climate proofed” for the future. The commercial reality is that, given investors are adapting to the “new normal” of a low/no return environment, marrying patient capital with long-term sustainable investing makes perfect sense.

Another opportunity is construction. Buildings are responsible for an enormous amount of global energy use, resource consumption and greenhouse gas emissions. In the US, buildings account for almost 40 per cent of national CO2 emissions and out-consume both the industrial and transportation sectors.

Trump has built his fortune as a property tycoon and investors are keenly aware that ensuring buildings are constructed to the highest environmental standards results in longer term profitability. As the demand for more sustainable building options increases, green construction is becoming increasingly profitable and desirable in commercial, industrial and residential markets. Global property developers appreciate that well-constructed and efficiently-run buildings will have reduced energy costs, attract responsible long-term investors and be able to command the highest rents.

Then there are the declining costs of clean energy and the fact that the renewable energy sector continues to be a bright spot for job creation.  According to the International Renewable Energy Association, global renewable energy employment increased by 5 per cent in 2015 to reach 8.1 million jobs.

It is through infrastructure upgrades and green property that the Trump administration may come round to the sustainability agenda by recognising the commercial realities and requirements of today’s investors.

It is also worth remembering that individual states in the US such as California—which has adopted higher emissions reductions targets than those set at the federal level—Vermont, Washington, New York, Oregon and a host of other states have strong climate policies in place, which will be independent of policies at the federal level. Climate-change related occurrences such as storm surges are expected to cause more than $500 billion in property damage in the US by the year 2100.

Before his inauguration on January 21, the President-elect has already felt pressure from businesses to stay the US course on climate change.  At COP 22, 360 businesses, including DuPont, Gap Inc, General Mills, Hewlett Packard Enterprises, Hilton, HP Inc., and Kellogg Company to name a few, urged Trump to honour the Paris climate agreement and continue to support bold action to reduce emissions.

China in the ascendancy on green finance

But regardless of what happens in the US, other countries are not standing still on climate policies.  During COP22, China renewed its commitment to reducing emissions and to its wider green finance agenda. Xie Zhenhua, China’s special representative for climate change, noted in a speech that climate and green investment has a vital role to play in transforming China’s economic structure.

Zhenhua further said that co-ordination is needed to attract green investment and that policymakers need to work out both economic and environmental policies. This includes promoting innovative, high-tech industries.

China’s leadership on green finance raises another issue for the US, namely, that the US will not want to get left behind and watch other countries surge ahead in green design, technology and innovation, all of which are fundamental to a dynamic economic future.

China was not the only country at COP22 to speak out on the momentum around climate initiatives.  French President Francois Hollande said the Paris Agreement “is irreversible”.

In a speech at COP22, he said: “The United States the first economy in the world, second emitter of greenhouse gases, must respect the commitments that were made.”

The PRI spearheads new initiatives on climate change

Amid the COP22 backdrop, it was a busy time for the PRI.  We launched new guidance, Green equity investing, at a Chinese government event and formally announced a deforestation partnership with Ceres, and supported the launch of a UN Global Compact platform to mobilise business action to support The Paris Agreement. We also participated in a Sustainable Stock Exchanges session, Fostering Green Capital Markets in the South, during which we called on exchanges to support the FSB Task Force Disclosure Framework and promote green investment.

Looking ahead, the FSB Task Force on Climate-related Financial Disclosures – of which the PRI chair is a member – will release draft recommendations on company disclosure on climate change on 14 December. Ensuring that investors have consistent and reliable data on how companies are addressing the material financial risks around climate change, is vital to making sound investment decisions.

The PRI encourages corporates and investors, both large and small, to engage the new US administration, not only because they appreciate the issues at stake, but because they can speak to the President-elect in language that he will understand.

Direct engagement is now the task at hand, so let’s focus on the opportunities to move the sustainability agenda forward.