Institutional investors command a stratospheric £70 trillion of assets and tens of millions of savers worldwide depend on them. These investors continue to back the 90 companies responsible for two-thirds of the harmful emissions generated since the industrial age began. The scientific community is absolutely certain that climate change is a clear, present and massive danger and scientists continue to churn out report after report to that effect. Institutional investors, by and large, have their earplugs on and their reading glasses off.
At the apex of the £70 trillion sit pension fund trustees, individuals who owe the public a duty to invest prudently. They evidently aren’t doing so because although 80 per cent of known fossil reserves cannot be extracted without extremely serious consequences across our economies, pension funds and stock markets continue to assign value to companies on the basis of these reserves.
If trustees were to accept that climate-related risks must be incorporated into investment analyses (and therefore priced into the value of traded shares), large amounts of money would migrate from climate culprits to the clean energy economy: The value of Big Oil, Big Coal and Big Gas would collapse to where it should be (about 20 per cent of its current size, then declining to close to zero by 2050). Furthermore, new capital would stop flowing to fossil fuel exploration, freeing up more than $5 trillion for climate-friendly investments. The political clout of big polluters would be impaired, and the $2 trillion of annual subsidies they receive - directly proportionate to the size of their lobbyists’ pay - would evaporate.
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To spark a clean energy revolution, multiple targeted lawsuits should be unleashed against pension fund trustees in as many jurisdictions as possible
How do we get pension fund trustees to invest prudently?
First, via a barrage of lawsuits. To spark a clean energy revolution, multiple targeted lawsuits should be unleashed against pension fund trustees in as many jurisdictions as possible – wherever legal analysis shows that litigation has a chance (even a tiny one) to succeed, either in the courts or via the court of public opinion. Calling for investors to divest from polluters is laudable but won’t be enough. The call to divest should be accompanied by robust action in the courts, aimed not at investors but at pension fund trustees, the investors’ ultimate “bosses”.
As recently as 1987, tobacco companies had never lost a case or settled. Like tobacco, it would likely take decades to win a claim from the big corporate polluters. Pension fund trustees, however, are a different story. Which pension fund trustee would like to be accused of violating the basic human rights (including the right to life, the right to health and the right to subsistence) of millions of people and of many millions to come? That’s exactly what they may be complicit in and it’s time we hold them to account via the courts, because Governments won’t.
A strategy anchored around lawsuits should shake the pension fund industry out of its torpor. Aggressive litigation would establish with the public first, then in the courts, that there is nothing responsible about investing in companies which are violating basic human rights. Even if no favourable court decision is forthcoming in the short term, the combination of a clear objective and a compelling and coherent message together with low costs to effect change creates a winning set of facts. Investors can switch their investments away from fossil fuel companies and any losses on these trades can be more than compensated by their portfolios benefiting from the clean energy economy.
Conveniently, fundamental change can be achieved without having to rely on politicians, regulators, the faltering UN climate talks or new legislation (or for that matter, demonstrations or civil disobedience). Indeed legislation isn’t working and even well-intentioned statutes are being abused. US agencies for example have turned environmental statutes such as the Clean Air Act inside out: On state, local, and federal level, the agencies treat environmental laws as if they were broad permitting systems, with permit denials the exception. Similarly, the carbon regime in Europe has fattened the pockets of energy companies who arbitraged low carbon prices into windfall cash of more than £15 billion over the past 5 years.
Second, in parallel with a targeted lawsuits approach, the communication of climate change by activists should focus almost solely on the egregious – and immediate – human rights violations it causes, rather than the harm perpetrated on the planet or its other inhabitants: Environmentalists cannot continue to be viewed as people who care about the environment and not about people.
The objective of this approach would be to seek to revoke the social license of big polluters to operate as they please. This would involve influencing how those companies are seen in the eyes of the more passive silent majority and ultimately by the pension fund trustees sitting at the top of the pyramid of money. Here’s my proposed “tag line:” It may still be legal to invest in the biggest polluters on earth but it’s immoral.
Environmentalists cannot continue to be viewed as people who care about the environment and not about people
Third, anticipating positive change at pension funds; the ineffective, under-funded – albeit extensive – United Nations climate finance infrastructure should be revamped. As I have argued, there are several funds set up by the UN and others, none of which have the financial means to decisively tackle climate risks. These should be allowed to raise the necessary funds – following the lead of the Global Fund to Fight AIDS, Tuberculosis and Malaria – via voluntary taxes on airline tickets and the shipping industry (each Government would decide whether to apply this tax and transfer its proceeds to UN climate funds).
In time, once Governments muster the courage to actually make a positive difference on climate change, these voluntary taxes can be supplemented by a compulsory financial transaction tax (commonly known as the “Robin Hood Tax”), a tiny levy on share, bond and derivative transactions carried out by banks and hedge funds. This could raise more than £178 billion a year. We would then have a Green Fund with the financial muscle to help the vulnerable, while the capital markets shift their cash to fuel clean lifestyles and economies.
This piece is the fourth and final article in a series by Assaad W. Razzouk on reviving and reinventing the global climate movement. This article first appeared in The Independent.