by Alan Brown for The Guardian
It is one thing to see climate change science becoming increasingly accepted, or even to have reached a tipping point in public and political opinion; it is quite another to expect that we will somehow meet the ambitious goals necessary to see greenhouse gas concentrations peak at a reasonable level.
The risk of free-riders, and of people, businesses and governments putting off what needs to be done until another day is just too great. When your political lifespan is typically less than a decade for even the most ambitious prime minister, the temptation to leave it to the next government is almost irresistible. But it doesn't have to be like that. There are five relatively simple steps that can be taken and which, collectively, could make a difference.
• First, we know that we can't manage what we don't measure. The Carbon Disclosure Project has made enormous strides in increasing the quality and quantity of data we have to allow us to measure our progress. We would benefit from taking this further, perhaps making it a part of the standard auditing process for all public companies.
• Second, we should not rely on goodwill or even on pricing mechanisms such as emission-trading schemes to get us to where we need to be. Certainly, we need to recognise the real cost of resource consumption, but also old-fashioned regulation can, and should, play its part.
• Third, we need to emphasise the opportunities here. Climate change is not only raising the temperature of the planet, it is also delivering the first predictable industrial revolution as trillions of dollars get spent on mitigation and adaptation. While there is no immediate direct translation from growth to profits, most of us, given a choice, would prefer to swim in the fast-flowing part of the river.
• Fourth, there is a lot of low hanging fruit out there where there is a positive IRR (internal rate of return), or profit to be made from undertaking energy-saving investment. Companies have every incentive to undertake this work. The payback – for example, from better insulation – should typically make it a no-brainer.
• Last, but not least, trustees of long term investment funds often take a very narrow, return-maximising view of their fiduciary duty. We should update fiduciary law to recognise formally, as the Companies Act already does, that trustees can and should take into account a wide range of stakeholder interests, including the environment, and sustainability. Trustees are effectively the asset owners, representing the interests of the ultimate beneficiaries of, for example, pension funds. Asset managers are their agents and will carry out their investment mandates as best as they can. Today, only a tiny minority of investment mandates require their investment managers to take into account sustainability or environmental issues. Institutional investors are only going to engage more effectively with company management on these matters if the asset owners (and their consultants) require it.
Every one of these steps will help us on our journey and collectively I believe they could make a real difference, accelerating our move to a low carbon economy.
Alan Brown is group chief investment officer at Schroder Investment Management Limited
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