Investors are clear, as global leaders in addressing climate change, it is vital for the EU to send strong, long-term signals about how it will fulfil – and indeed, step up – its commitment to meeting the goals of the Paris Agreement, writes Stephanie Pfeifer.
Stephanie Pfeifer is CEO of the Institutional Investors Group on Climate Change (IIGCC).
EU leaders meet shortly in Sibiu, Romania, to discuss the Future of Europe. As well as the Brexit elephant in the room, discussions will unfold on the highest priority topics which are likely to dominate both the upcoming European elections and the new Commission mandate later in 2019: defence, economic and monetary policy, the social dimension – and, sustainability.
Institutional investors – the pension funds and asset managers directing trillions of euros with a view to ensuring sound financial returns for their beneficiaries – will be closely watching the sustainability debate. This is because investors recognise the significant risks posed by climate change, as well as the enormous economic opportunities provided by low-carbon and climate-resilient technologies, markets and business models. For these reasons, a growing number of investors are already stepping up their commitments to sustainable and responsible investment, as well as putting pressure on high-emitting companies.
But investors also look to policy-makers to enable the scaling up and acceleration of this action with the right policy frameworks. Clear, long-term legislative programmes are critical to the ability of investors to assess and manage climate-related risks, to support innovation and invest in opportunities that will sustain a low-carbon, more energy efficient and climate-resilient world.
A cornerstone of the EU’s future legislative programme will be the Strategy for Long-Term Greenhouse Gas Emissions Reduction. When the European Commission published the precursor to this – the strategic vision on “A Clean Planet for All” – in November 2018, investors welcomed the opportunity for a discussion on how to align all relevant EU policy frameworks with the goals of the Paris Agreement, as a way to send the most positive investment signals possible. The stakes here are not insignificant. The European Commission itself acknowledges that even to meet current climate and energy targets, €180 billion per annum in additional investment will be required.
It is the interdependent but sometimes overlooked nature of the relationship between climate change and private finance which investors are now asking leaders to focus on in Sibiu. If investors are to be confident in the EU’s long-standing commitment to tackling climate change, there are key elements that the Long Term Strategy must cover. This is why I and several other investor CEOs have co-signed a joint statement to EU leaders, making clear the priorities of leading investors and business leaders.
Key to the strategy must be an unqualified decarbonisation objective for the EU to achieve net-zero emissions by 2050 at the latest. The science is clear that any later will not be consistent with the Paris Agreement’s goals and will therefore lock in catastrophic levels of climate change.
But high-level targets are not enough – investors need to know how policy-makers intend to implement their plans. This is why the net-zero objective must be underpinned by a holistic strategy in which all sectors, instruments and actors play a fair role. This will cut across industrial policy, R&D and innovation frameworks and financial instruments.
Difficult discussions will also be required on how to increase and strengthen the EU’s existing 2030 climate and energy targets, as well as how to assess new EU policies and investment decisions, to ensure the full alignment of both with the new net-zero objective.
A final consideration for leaders in Sibiu will be the role of the EU in an increasingly globalised world. The EU is expected to be the first major power globally to adopt such a strategy, and show it is possible to achieve a strong and prosperous net-zero emissions economy by 2050. As such, the eyes of the world are on the EU at a vital stage in the international climate change process, especially given the run-up to the UN Secretary General’s Climate Action Summit.
A lot rests on the ambition, credibility and success of the EU’s approach to climate change which leaders will be discussing in Romania. The opportunity for the EU in Sibiu to show its partners what climate change leadership looks like is clear. Investors are urging leaders to seize it.