Tuning out the anti-ESG rhetoric, institutional investors globally are charging ahead with opportunities to finance a sustainable future.
The number of sustainability-focused projects around the globe has grown rapidly in recent years, from hydropower plants in Brazil to electric bike infrastructure in India and power transmission lines in the American West, plus scores of other approaches.
The need for sustainable-minded investments is growing, notes the United Nations' 2023 Financing for Sustainable Development report.
This is especially true when it comes to addressing climate change. Meeting the Paris Agreement goal of limiting the global temperature increase to 1.5 degrees Celsius above pre-industrial levels will take an estimated $126 trillion investment in climate solutions, according to the Institutional Investors Group on Climate Change, a European membership body for investor collaboration with more than 400 pension funds, asset managers and other members representing 26 countries and a collective €60 trillion ($65 trillion) in AUM.
The IIGCC suggests 10 priority technologies to invest in to meet the Paris Agreement goal: solar photovoltaic (or PV), wind, grid-scale electricity storage, new electricity lines, electric vehicle batteries, building retrofits, chargers, hydrogen-based electricity generation, forest restoration and green steel.
And asset owners are ramping up their climate investments to help with the transition to a zero-carbon future. On April 5, two of the five pension funds in the $248.2 billion New York City Retirement Systems set a goal of $36 billion combined in climate change solutions investments by 2035 and an interim goal of $8.2 billion by 2025. All five pension funds have a collective goal of $50 billion invested by 2035.
Even some heavy-emitting industries can be part of the energy transition story, and there is increasing interest in keeping them on the balance sheet to get emissions lower, said David McNeil, head of responsible investment research for Insight Investment in London, with $786.2 billion under management. "We are seeing a lot of interest (from investors engaging) in hard-to-abate sectors — shipping, steel-making, real estate — that have been a perennial challenge," he said. While asset owners might have gone straight to net-zero strategies before, "now I think there's a lot more sensitivity to being part of financing the transition. There is definitely a bit more nuanced view of the transition that's starting to emerge," Mr. McNeil said.
He and others anticipate that COP28 (the United Nations Climate Change Conference beginning Nov. 30 in Dubai) and its expected push for countries to produce climate change transition plans will provide even more investment opportunities.