Do you want to stop climate change in its tracks? You can. Via your pension fund.

Despite decades of effort, the climate movement has little results to show for it. The pension fund industry is a critical influencer in making fossil fuels financially unviable, says Sindicatum Sustainable Resources CEO Assaad Razzouk.

oil flares
90 companies are together responsible for two-thirds of the harmful emissions generated since the industrial age began, and control five times as much oil, coal, and gas as it is safe to burn. Image: Shutterstock

The climate movement is a cast of thousands and thousands – all of us – fighting against our addiction to fossil fuels and for clean-energy-powered economies and lifestyles.  

Climate activists have been travelling the world twice a year for 25 years, congregating at UN-sponsored climate talks, taking thousands and thousands of flights, producing thousands and thousands of documents, every year, then doing the same thing again the following year.  And over and over again. Thousands of government officials, advisors, consultants, think tanks, NGOs, scientists, university delegations. 

Except they – we - have no result to show for:  Under the watch of the climate movement, emissions – man made pollution - from fossil fuels continue to increase even today.  Because we are burning fossil fuels, levels of carbon dioxide (CO2) in the atmosphere have been relentlessly rising and are now higher than they have been at any time in the past 400,000 years.

Worse, if that’s even possible, is the fact that the global financial markets, all 150 trillion dollars of it (the value of all the stocks and bonds outstanding in the world), completely ignore anything and everything the climate movement has come up with. You will not find climate risks priced by the financial markets into anything.  They aren’t in real estate prices, infrastructure projects, building prices, construction costs of roads and ports, travel, clothes, water, consumer goods, industrial goods – climate risks are taken into account exactly nowhere. 

But they should be, because we know these risks are there, everywhere, growing, scary. 

What would happen if we keep trying to solve the existential climate issue by continuing to go to the same meetings to do the same thing over and over again?

The 150 trillion dollars financial markets (in other words, the Colossus) are completely ignoring the entire climate movement.  But move the 150 trillion dollars capital markets and you will change the world, because everything and everyone will move with that mass of money.   

If we manage to get the Colossus to price climate risks, the cost of money will go up, in some cases tremendously, for those turning the planet into somewhere no longer liveable for us (oil, gas, coal companies) and in time, they would be priced out of the energy and fuel markets. 

If you believe in the urgency of dealing with climate change, then you also have to assume that the growing Divest movement won’t get there in time:  Its current size is tiny, influencing 0.05 per cent of the Colossus.  Multiply the Divest movement results by 20 and you still would only influence 1 per cent of the Colossus.  The moral pressure applied by the Divest movement is however important beyond the size of its financial impact.

So, the climate movement isn’t delivering – we need to do something different, big, and with an immediate impact:  We need to move the 150 trillion dollars Colossus, all of it, by finding a way to force it to systematically embed climate risks into investment analyses.   

We can.  Here’s how. 

We need to focus on a narrow objective, making the “Big 90”’s money more expensive, in other words increasing their cost of capital, thereby stifling their ability to finance growth.

First, we need to focus our efforts.  The climate movement is currently all over the place and doesn’t know what to focus on:  Politicians? Oil companies?  Investors? Defending the science?  Agriculture?  Food? Housing? Transforming how we live?  Travel?  Cities? Aviation and shipping? Trade? The Arctic?

It is true that harmful emissions come from many activities and multiple energy sources. But we also know that just 90 companies are together responsible for two-thirds of the harmful emissions generated since the industrial age began. All are oil, gas, coal or cement companies and their CEOs can conveniently fit in a short Tesla convoy.

These 90 companies control five times as much oil, coal and gas as it is safe to burn; in other words, 80 percent of their reserves must be locked away underground to avoid a catastrophe.

This tiny number of large companies, lobbying to prevent government action on climate change, are at the heart of our current carbon-intensive model destroying the planet.

The target market is therefore clearly small and contestable – it’s how we contest it that matters.

Second, we need to focus on a narrow objective, making the “Big 90”’s money more expensive, in other words increasing their cost of capital, thereby stifling their ability to finance growth.

This would dramatically slow emissions, while moving massive amounts of capital to where it belongs: economies and lifestyles fuelled by clean energy.

Conveniently, sitting at the very top of the 150 trillion dollar capital markets is the pension fund industry, 25 per cent of the total, a critical “influencer”.  

Within the pension funds industry, the 20 largest pension funds alone account for 20 per cent of the sector. We can therefore influence the entire 150 trillion dollars Colossus by getting the top 20 pension funds in the world to require that climate risks are priced (they don’t today). 

The legal basis for incorporating climate risks into the investment analysis of any stock or bond, indeed any investment, is straightforward: Pension funds have a legal duty to act in the interest of their beneficiaries and invest “prudently.”  With the science unanimous on the climate risks we are running, how could they possibly be investing prudently if they aren’t taking climate risks into account? 

Well, they aren’t.  In fact, a student just graduating from university today will retire in 40 to 50 years and his or her pension is emphatically not taking account of the long term risk of climate change.  But the legal obligations of pension fund fiduciaries and their duties of “loyalty”, “care”, and “prudence”, must require them to consider decarbonizing their entire investment portfolios. 

Pensions are therefore the key to taking climate change responsibility. 

Changing the world can come from some 2,000 committed pension fund beneficiaries, individuals like you and me, who will approach 20 pension funds and ask them, nicely, to take their future into account when investing.  

This is a simple ask: the pension funds can modify the investment mandates they give to other asset managers and require an assessment of climate risks in all investment decisions. Once they do, corrected prices and costs of capital will drive massive amounts of money away from destructive activities such as Shell’s attempts to plunder the Arctic on the pretense that it is looking to extract oil in a decade or two. 

If they refuse, we may have to ask them less nicely.

Assaad Razzouk is chief executive officer of SIndicatum Sustainable Resources. This post was originally published on LinkedIn Pulse.

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