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The Actuary The magazine of the Institute & Faculty of Actuaries

Investors call for policy action on green investing

A total of 285 investors signed a statement to be delivered to the G20 and other governments ahead of the United Nations Framework Convention on Climate Change conference at Durban in the next two months.

The initiative is led by three investor groups - the Investor Network on Climate Risk (INCR), the European Institutional Investors Group on Climate Change (IIGCC) and the Investors Group on Climate Change (IGCC) in Australia and New Zealand - alongside the United Nations Environment Programme Finance Initiative (UNEP FI) and the Advisory Council of the Principles for Responsible Investment (PRI).

The statement comes on the heels of a climate change report conducted by the INCR, IIGCC, IGCC and UNEP FI. The UNEP Global Trends in Renewable Energy 2011 report showed investment grade policies and government incentives, which compensate for higher risks and favour low carbon assets, would stimulate private sector investments into climate change solutions. The report also emphasised how long-term policy stability is critical and retroactive changes can significantly damage investor confidence.

Global investment in renewable power and fuels reached $211bn in 2010, up 32% from 2009. However, investments in low-carbon technology are still lower than the $500bn needed per year to maintain the global average temperatures below two degrees Celsius, which amounts to $13.5trn by 2035, findings from the International Energy Agency show.

But investor support for climate action has doubled since November 2008, when 150 investors with $9trn in assets under management first acted on climate change.

According to the report, investment growth mostly occurred in developing economies, with China contributing over two-thirds of the total investment in developing countries and more than a third of the global total. Other countries struggled to attract investments because the policies do not provide sufficient incentives for investment, added UNEP.

IIGCC executive director Stephanie Pfeifer said: "Policy risk has a critical influence on investment in low-carbon growth areas such as renewable energy. Attracting capital at the scale required to meet climate change goals will only be possible when low carbon investments are seen as attractive relative to higher carbon investments. Determined leadership on national and international climate and energy policy will be fundamental in shifting this risk/return balance in favour of low carbon investments".

Source: Professional Pensions