The city-led movement for divestment & sustainable investment is growing

By Jazmin Burgess, Principal Policy Officer, Greater London Authority & Lolita Jackson, Special Advisor, NYC Mayor’s Office Climate Policy and Programs

As Mark Carney, the Bank of England’s governor, has once again highlighted, climate change poses a key threat to the global financial system. His urge to central banks and supervisors to take bold steps to green the financial system is highly welcome. So far, however, many financial actors remain key contributors to the climate crisis, by continuously fuelling the energy sources of the past. In 2017, US$715 billion was spent on the oil and gas supply globally, whilst global investment in renewables and energy efficiency declined. Beyond causing dangerous levels of greenhouse gases, the fossil fuel sector is engaged in destructive lobbying against climate policy aligned with the Paris Agreement, and spent at least US$1.4 billion over the past ten years on PR and advertising.  

By removing fossil fuel assets from investment portfolios and increasing assets in sustainable companies and projects, the Divest/Invest movement is fighting back against the dangerous business models of fossil fuel companies. Divest/Invest does not only challenge the social license of the energy giants whose business models are not compatible with a 1.5°C future. It has now also become a material risk for them: last year Shell admitted that a continued rise in divestment could have a “material adverse effect on the price of our securities and our ability to access equity capital markets”. 

New York and London are proud to be part of this burgeoning movement. The Mayor of London made a commitment to divest the city’s pension assets in 2016 and since then the London Pension Fund Authority (LPFA) has developed a clear Climate Change Policy which requires it to actively identify, manage, and report on the climate risk of investments as well as pursue divestment. As part of the policy, the LPFA will be considering its portfolio’s alignment with the emissions trajectory needed to meet the Paris Agreement targets. It currently has less than 2% of its assets in fossil fuels and has plans in place to divest its remaining investments by 2020. The LPFA is also investing in green projects and companies, currently at 2,8%, supporting the swift transition to a sustainable economy. In January 2018, Mayor Bill de Blasio announced that New York will be the first major US city to divest its pension funds from fossil fuels within five years. The City has also committed to double its investment in climate solutions over the next three years from 1% to 2% of the pension funds’ overall assets, which in today’s dollars would be US$4 billion. 

However, with the limited time we have to act, we need all cities to step up and join the Divest/Invest movement now. Cities are at particular risks of the negative impacts of climate change. BlackRock estimates that 58% of the U.S. metropolitan areas are likely to suffer GDP losses of 1% or more by 2060-80. It just shows how urgent mitigating climate change is in a municipal context. Cities also require urgent boosts in terms of low-carbon infrastructure spending. The New Climate Economy estimates that up to three-quarters of the sustainable infrastructure financing gap of around US$2-3 trillion per year until 2030 will be required for urban infrastructure. Ambitious Divest/Invest action by city pension funds is a logical way of addressing both.  

Committing to Divest/Invest action also makes financial sense. BlackRock’s analysis shows that climate change and related extreme weather events “pose tangible risks to investment portfolios today, not just years in the future”. So far markets mostly operate in a short-sighted way and fail to take account of the material impact of the physical risks of climate change already taking place. A recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) further points to the “lagging stock market performance, depressed profits and a weak outlook” of the fossil fuel sector. Not taking this into account, could put pension fund trustees at risk of breaching their fiduciary duty. 

Removing fossil fuel assets from portfolios and increasing climate-friendly investments are not always straightforward steps to take. London and New York are proud to lead the C40 Divest/Invest Forum, which means cities no longer need to address these challenges alone. It is kindly supported by Wallace Global Fund, the Climate Change Collaboration, an initiative of Ashden Trust, Mark Leonard Trust, and JJ Charitable Trust, and Rockefeller Brothers Fund. Last month, we held our first Forum in London where representatives from London and New York came together with Boston, Cape Town, Copenhagen, Durban, Los Angeles, Oslo, Paris, Pittsburgh, and San Francisco to share experiences and learning. 

Many more cities are encouraged to join us on this exciting and important journey. Contact Friederike Hanisch, Senior Manager, C40 Divest/Invest Forum at FHanisch@c40.org to find out more.