Lance Pierce joined CDP as President, North America in November, 2014. His previous NGO roles include Executive Director of Ceres, the host organization for the Investor Network on Climate Risk and founding Director of the Climate and Energy Program at the Union of Concerned Scientists. His corporate experience includes serving as Director of Corporate Issues Management for former food and consumer goods giant Altria Group, and as a consultant to global firms in investment banking, real estate, United Nations agencies, and international development organizations.
Christopher Skroupa: Investors seem to suddenly be waking up to sustainability – especially to low carbon investing. Why is that, and can you give us some examples?
Lance Pierce: Low carbon and sustainable investing are gaining pace because of increased demand from clients, because we need to limit global warming to +2 degrees, and because there is no trade off when it comes to returns.
A growing body of research, including CDP’s, shows that companies with strong carbon disclosure and performance perform better than their industry peers. The growing trend is also illustrated in data from the Global Investment Sustainability Review, which recently showed that U.S. investments screened for ESG factors rose a dramatic 76% from 2012 – 2014: up from $3.74 trillion to $6.57 trillion.
Even the divestment from fossil fuel movement is now gaining mainstream traction with an announcement in early June that the Norwegian government pension fund ($890 billion) – the world’s largest sovereign wealth fund – is aiming to ensure the long-term stability of its fund and reduce risk by selling off its investments in coal.
Products like BNY Mellon’s green beta investment approach for a carbon efficient portfolio and State Street’s new green bond index-fund, which provides access to an environmentally friendly fixed income investment strategy are just a couple of examples of a wave of innovation gaining mainstream traction on Wall Street.
Add to all this the fact that the French government announced this May a new law requiring institutional investors there to measure and disclose their portfolio exposure to carbon. And, in the run up to COP21, a new platform was launched at Climate Week in Paris, where over 400 investors have committed to a combination of initiatives including measuring the exposure of their portfolios to climate change risks; engaging with the companies they own to advocate for improvements in the management of climate risks and opportunities, and reallocating capital from emissions intensive activities and fossil fuels to low and zero carbon activities.
With the G7 governments committing to decarbonizing the economy by the end of the century in Bavaria this June, I think we’ll see more and more investment products and more innovation in this space as opportunities to profit from the shift to low-carbon abound.
Skroupa: Can companies really set and meet a greenhouse gas (GHG) reduction target that is science based? How do they do this, especially if they are a heavy emitter?
Pierce: Yes they can and they already are. Mars Inc. and NRG Energy, already align their targets with an internationally agreed-upon goal to limit global warming to 2 degrees Celsius and many more are joining their ranks. Kevin Rabinovitch, global director of sustainability at Mars recently explained that setting a science-based target is not science fiction, or even economic fiction: “This is possible, this is doable, we’re doing it.”
As part of CDP’s Road to Paris campaign, 47 companies have already pledged to adopt science-based targets including both Honda and Nissan Motor Companies. This is a good start, but we still need to see more representation from U.S. companies in this group, and are currently running a campaign to have 100 companies signed up to the initiative by December.
For heavy emitters, setting such a target could help redefine their companies’ bottom lines by creating new business models and sources of value, disrupting currently unsustainable economic systems in the process. It’s a very exciting time.
CDP has partnered with a group of other NGO’s to develop a tool to help these emitters establish emissions targets in line with their sector’s projected level of economic activity and potential for emissions reductions. The Sectoral Decarbonization Approach and the tool we have developed were launched in Paris on May 20th. We hope to see widespread adoption in the run up to December’s conference of the parties.