in the management of long-term investments. The failure to address those
risks is harming the sustainability of financial markets, causing
financial hardship for millions of people around the world.
Last month's UN Climate Change Conference in Poznan has highlighted the
systemic risk we face with climate change.
Without taking adequate steps to address that risk, we face the prospect
of another dire economic contraction as its effects take hold. The Stern
Report estimated the current trajectory of greenhouse gas emissions
would lead to a reduction in global consumption per head of 20%. That
would have a devastating impact on the global economy, causing a massive
reduction in returns for long-term investors and pension funds.
Unfortunately, global emissions are currently rising at 3.1% per annum,
a significant increase on the decade leading up to Kyoto ratification.
At the same time, the Chair of the International Panel on Climate Change
has said that 2015 is the last year in which "the world can afford a net
rise in greenhouse gas emissions, after which 'very sharp reductions'
A range of scientific testimony at Poznan said that the world can still
avoid "catastrophic" climate change — if it acts quickly to cut
emissions and switch to low-carbon energy.
Decisions made at Poznan to secure a firmer carbon price are important;
but implementation is going to take time. Both Poznan participants and
the parallel EU discussions on climate change acknowledged the need for
immediate major energy infrastructure investments to switch economies to
low-carbon energy. Many countries, already carrying large debt burdens
as a result of the financial crisis, will need the support of private
capital - pension funds, sovereign wealth funds, insurance company
investments, and he like - to achieve the scale of the switch required.
Those same managers of capital need and want governments to take those
quick steps, primarily to protect the value of their investments but
also to ensure that the world into which their members and shareholders
will retire is one worth living in.
The European Commission's recent floating of a European renewables
supergrid project is an example of a project that will require
significant multi-government effort to facilitate the required investment.
The investor community, representing some US$121 trillion, now needs to
be engaged to work quickly with G20 governments to take the steps
required to ward off dangerous climate change and ensure the
sustainability of our world.
Only if we take a truly international approach to marrying the needs of
capital and society, will we develop the international solutions called
for to meet the challenge of climate change with the speed required.
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