Green groups taking battle to U.N. conference

Pension industry organizations fighting for greener investment strategies are taking their campaign to the United Nations Climate Change Conference in Copenhagen next month.

The Institutional Investors Group on Climate Change, the Investor Network on Climate Risk and the P8 Group — which is backed by Britain's Prince Charles — are among those proposing a series of initiatives aimed at putting a more earth-friendly face on pension investment portfolios.

“Copenhagen is key for getting the framework right,” said Aled Jones, deputy director of the University of Cambridge Program for Sustainability Leadership, which together with The Prince of Wales' Business and Environment Program, in 2007 launched the P8 initiative — a reference to the G8 group of countries, though there are more than eight funds in the pension fund group.

Based in London, the P8 Group comprises top global pension funds such as: the €180 billion ($264 billion) Stichting Pensioenfonds ABP, Heerlen, Netherlands; the $201 billion California Public Employees' Retirement System, Sacramento; the $130.3 billion California State Teachers' Retirement System, West Sacramento; and the £26.8 billion ($44.7 billion) Universities Superannuation Scheme, Liverpool, England. Overall, pension funds in the P8 have about $3 trillion in assets. According to a report published in October by the United Nations Environment Program with support from the P8 Group, pension funds globally have an aggregate $12 trillion in assets and sovereign wealth funds control another $3.75 trillion.

While the proposals vary among organizations, they have several similar goals, which include:

• increasing government support for technologies that promote energy efficiency, including more funding for early stage projects;

• developing measures toward an effective global carbon market, including efficient allocation of allowances and consistency among various carbon markets; and

• encouraging private-sector investments, for example, by shifting more investment risks associated with low-carbon project developments to the public sector. The support is not necessarily financial and can include regulatory measures to attract investments.

Stephanie Pfeifer, program director at the London-based Institutional Investors Group on Climate Change, said another goal is to encourage governments around the world to set a worldwide target for emissions reduction. The IIGCC — an organization established in 2001 to promote collaboration between pension funds and money managers over climate change — is proposing that developed nations reduce their emissions by 25% to 40% by 2020 and 80% to 95% by 2050.

“The targets for developed countries will only be credible if backed up by clear national action plans,” according to an investor statement prepared by the group — along with the group's Boston-based equivalent, the Investor Network on Climate Risk, and others — to be submitted for consideration at the Copenhagen conference.

The statement decried the lack of “a clear and appropriate long-term policy” that would get investors to consider climate-change issues “and to reallocate capital toward a low-carbon economy,” according to the statement, which is supported by 186 institutions representing about $13 trillion. “Currently, the level of integration is hampered by policy uncertainty, weak policy and short-time horizons.”

One example involves the carbon trading market, which is estimated to total $100 billion globally. Price movements in the carbon market might encourage short-term emission reductions, but “in terms of encouraging investing in lower-carbon technology, that signal isn't yet there,” Ms. Pfeifer said.

Clean technology is another category for institutions looking to reduce carbon emissions through investment decisions, Ms. Pfeifer said. Investors are not only allocating assets to companies that develop such technology, but they're also separately encouraging energy efficiency through engagement with other listed companies in their portfolios.

“For policymakers ... there are ways to use public sector money to scale up private sector investments, for example, through the use of some sort of risk mitigation,” Ms. Pfeifer said. “That's another issue we're trying to put on the agenda.”

Investors are also searching for investments that mitigate the consequences of climate change, Ms. Pfeifer said. For example, population growth is a major driver of climate change. As a result, investors might be looking at better ways to manage existing natural resources such as timberland, water and farmland as an investment strategy.

Gary Vaughan-Smith, partner at SilverStreet Capital LLP, London, said his firm will launch in January a fund to invest in farmland that is gaining interest from some of Europe's largest pension funds. He declined to identify the pension funds.

One of SilverStreet's main priorities is to improve efficiency on existing farmland.

“In the long term, (climate-change) solutions will have to come from private-sector investments,” Mr. Vaughan-Smith said. “We can't just rely on government funding. Most (governments) are already so constrained because of their debt levels, which is in many cases are now 100% of (gross domestic product) or more.”