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9 September 2015

Dealing in T’s not B’s

On the evening of September 7th, 2015, some 25 pension funds, endowments, and policy-makers gathered at the Royal Automobile Club (RAC) in London for the 8th IPCM dinner in the global Climate Investor series. This is IPCM’s first Climate Investor Report summarising the dinner discussions that started in September 2014 and have gathered more than 130 investors and policy-makers in a global conversation that is on-going ahead of UNFCCC CoP21.

Paul Clements-Hunt1 writes:

Several years ago at an Inflection Point Capital Management climate investor dinner at the World Economic Forum in Davos, Switzerland, George Soros quipped that he now only deals in US$ figures starting with a “T”.

In that one remark, quixotic for most mortals, the master investor succinctly captured the core of the climate change challenge that demands US$ trillions of dollars to be mobilized annually. The circa US$ 330 billion2 plus being deployed by 2013 for climate finance falls critically short of the mark. Despite a promising direction of travel in terms of the flow of low carbon finance and investment in clean and renewable energy technologies in the past decade, the financing gap remains devastatingly wide in terms of achieving the goal of capping global warming at a 2 degree centigrade (2°C) rise. The 2°C goal is slipping through mankind’s fingers with recent estimates3 that the planet is heading for a dangerous 4°C rise above pre-industrial levels by this century’s end.

Fixated on the B’s

The United Nations climate process appears fixated with the commitment made by developed economies in 2009 at the UN’s failed Copenhagen summit to mobilize US$100 billion a year by 2020. Governmental commitments stand at just US$30 billion leaving a US$ 70 billion a year shortfall as it stands. The broader multilateral financing community is obsessed with re-tooling national and international development banks to take on the challenge and yet, by 2014, these public institutions committed finance had reached just US$28 billion4.

Smartly allocated public funds should certainly leverage a greater flow of private investment and finance but the shift from political commitment to actual deployment of funds post the 2008 global financial crash has been glacial.

The stark reality is that in coming decades only private investors — pension funds, sovereign wealth funds, insurance reserves and the family offices of the ultra-rich — and the markets they operate on can lift climate finance from the B’s to the T’s. Some estimates suggest that more than 85%5 of necessary investment and financing will come from private sources.

T’s or B’s: Where do we stand?6


  • By 2013 global climate finance totalled $331 billion broken down as $193b (58%) private sources and $137b (42%) from public sources;
  • Of this $34billion flowed from developed to developing countries, a 20% reduction from 2012;
  • 74% of climate finance is used in the country in which it originates flagging the limited flow from develop to vulnerable developing countries;
  • Global green bond markets reached more than US$36 billion7 in 2014 driven by 73 issuers in a tripling of the market in a year. With global bond markets standing at US$80 trillion plus, the green bond market — while accelerating — is just post conception.


  • Some US$89 trillion is needed8 by 2030 to set in place, maintain and or upgrade the infrastructure underpinning our cities, energy and land use systems; the estimated bill for greening the US$89 trillion of real assets required by 2030 is an additional US$ 4.1 trillion that must be invested if we are to have any chance of capping global warming at 2oC;
  • A United Nations 2011 estimate9 of the annual financing demand to green the global economy cited a range of US$1.5 to US$2.59 trillion, equating to around 10% of total global investment per year as measured by global Gross Capital Formation. The UN study went on to frame a global economy greening scenario utilising US$1.3 trillion or 2% of global GDP;
  • A World Economic Forum report10 from 2013 estimated that the cost of greening the required US$5 trillion per year annual spend up to 2020 on core sectors (agriculture, telecoms, power, transport, buildings, industrial and forestry) would come to an additional US$0.7 trillion a year.

The global series findings to date (September 2014 – September 2015) are presented below and, as per the Chatham House Rule11 governing the dinner discussions, are not attributed to individuals. A final Climate Investor Report will be published on December 14, 2015, two days after CoP21 ends. From September to December a series of interim reports will be published online.

The summary points, reflecting common threads across the eight dinner discussions that have taken place to date, are ordered in two headline sections covering:

A. Global politics and big picture issues

B. The investment industry

A. Global politics and big picture issues

1. The 2015 refugee crisis at the borders of Europe is a mere “taster” of the social disruption that a climate refugee disaster will create during the 21st Century unless large investors get it right.

2. Only the G7 economies have the weight and influence to drive a transition to a low carbon global economy. The policy changes in China and the US have been extra-ordinary since the “car crash” that was the UN’s Copenhagen climate summit and some form of broad agreement in Paris is anticipated by the markets.

3. Climate change will bring a fundamental contextual change to global economics and investors will miss the historic buying opportunities presented by the low carbon transition if a business as usual sectoral bias continues to dominate. There are limits to “six sigma efficiency” if the natural systems underpinning economics is changing.

4. How political and economic power is held is changing and is more diversified. The United Nations system is changing and Paris will reflect this. The UN and member governments are no longer where change takes place. At Copenhagen in 2009 there were 200+ climate/carbon regulations while just six years on that figure is 750+ with regions and cities playing a greater role.

5. If you factor in global subsidies for fossil fuels then carbon is, effectively, valued negatively.

6. Asset owners should drive the agenda as they have a 30 year horizon while politicians at best have a five year view.

7. The question is not what asset owners should expect from UNFCCC CoP21 but rather what we want and how we demand it. The shift to a low carbon future will be done by investors and industrials not by politicians.

8. Policy volatility ensures the lack of a reliable carbon price to discipline markets and thereby enable investors to make credible risk reward assessments over the mid-term. Both at the multilateral United Nations level, as well as amongst major regional and national governments, policy failures, claw back and “flip flop” creates an investor wariness that is hard to overcome.

B. The investment industry

1. The investment sector and asset owners have to demand and back innovation in carbon compliant products and ramp up engagement across carbon intensive sectors:

a. We need to see the development and roll out of indexes that are 2°C compliant;
b. Divestment and passive indexes cannot be the answer for large, mainstream asset owners that see climate related fiduciary duties as real;
c. De-carbonisation of portfolios and the emergence of Carbon Zero portfolios that combine the stocks of fossil fuel leaders that pro-actively support the energy transition and deep emissions mitigation, low carbon solution providers and break-through technologies will be the future;
d. The 1400 institutions and US$60 trillion in assets represented by the United Nations-backed Principles for Responsible Investment (UNPRI) can be a hugely effective engagement platform and asset owners must intensify and better resource their engagement efforts.

2. Asset owners should drive the low carbon agenda as they have a 30 year horizon while politicians at best have a five year view. The question is not what asset owners should expect from UNFCCC CoP21 but rather what we want and how we demand it now and for the five years after Paris. The asset owner community has to up its game to frame the investment debate around the low carbon transition. The shift to a low carbon future will be done by investors and industrial not by politicians.

3. The market downturn in early September 2015 is presenting us with a period when the multiples on some fundamentally sound clean, green, low carbon stocks are at a historic low. There is the type of buying opportunity investors rarely see and we need to put money to work now as the window will not remain open forever. The reality across our markets is that money is running for the doors and great opportunities in low carbon solution providers and emerging technologies are being missed.

4. Asset owners have to change from being “sleeping partners” to actual owners and wise investors that assert their actual rights when we hold a stock. Investment needs a new generation of leaders who understand the change and opportunity that climate change is bringing. The idea that the true owners of capital are the fiduciaries needs to come to the fore.

5. Divestment from fossil fuels, while galvanising impassioned debate and generating headlines, cannot be an investment answer for mainstream asset owners.

6. Investment executives unwilling to take on new risks — often because of their own fear of career risk — may miss the multi-generational opportunity that an energy transformation presents. The transition will have four components all with new risks but rich with opportunity: energy efficiency; renewable technologies; storage; and a new concept of the grid.

7. Although important pension funds are less influential than they were in listed markets with UK pensions funds owning less than 10% of the FTSE. Changes in where and how capital is held is changing the investment industry

8. The supply of credible carbon and climate investment products and projects at a scale big enough for the largest asset owners to allocate capital to are a genuine, on-going challenge that holds back greater flows of low carbon investment. The green and low carbon fixed income market is embryonic and needs to grow to scale across corporates, municipalities and sovereign issuance.

9. For forward-looking investors the question of stranded assets becoming an investment risk is not a question of if but when. Not considering such questions in industries where an asset owner has long-term interests and holding will become a breach of fiduciary duty sooner than people believe.

10. Trustee education and sensitivity to the potential impact of climate change on the investor risk-reward equation is at a nascent stage and, unless the Trustees of major asset owners undergo an accelerated processes to understand investor relevant issues related to climate change this will remain the case.

11. Pension fund consultants, to an overwhelming extent, have acted as a barrier to the direct integration of climate change considerations into strategic asset allocation decisions. Rhetoric and media camouflage by the consultant community have replaced action that is sorely needed to ensure asset owners manage climate risk and benefit from the investor opportunities created by new industries and technologies.

12. The Pension consultants are simply a reflection of deeper structural problems across the investment industry in general. The required “fix” in terms of consultants acting as gate keepers to asset owners, and not working to integrate climate as a materially relevant risk issue, is symptomatic of dysfunctionality across the global investment industry in its entirety.

13. Climate change considerations are being bolted on to investor risk-reward considerations across a range of asset classes in an ad hoc, fragmented and non-standardised manner.

14. The random integration of this materially significant risk factor into investor understanding of a range of asset classes is exacerbated by the stop-start uncertainty of climate-related policy processes at the multi-lateral, regional and national levels.

15. Basel III, a regulation that was engineered in a frenetic, politically dictated timetable after the global financial crash, needs to become a Basel IV standard that integrates low carbon and green financing considerations. The current Basel III standard undermines the flow of climate finance and low carbon project finance notably to the most vulnerable developing countries.


1. The views expressed are those of the author Paul Clements-Hunt, an IPCM Partner and the Founder of The Blended Capital Group. Clements-Hunt is the former head (2000-2012) of UNEP Finance Initiative, the original UN-backer of the Principles for Responsible Investment. He is the principal author of the Finance Chapter of the 2011 UNEP Green Economy Report.

2. Climate Policy Initiative referenced in ORF Policy Brief # 16, August 2015, "The Paris Package: Setting the Finance Agenda for Climate Action," Samir Saran & Rathin Roy, ORF.


4. ORF Policy Brief #16, August 2015, "The Paris Package: Setting the Finance Agenda for Climate Action," Samir Saran & Rathin Roy, ORF.


6. Ibid.

7. Climate Bonds Initiative

8. Climate Bonds Initiative




The Investor Climate Dialogue 2014-2015

Commencing in September 2014, Inflection Point Capital Management, Groupe La Francaise, IPCM's strategic joint venture partner, and The Blended Capital Group, have convened a globe-roaming investor dialogue on climate change.

The objective of the dinner series is to channel investor views, notably those of large asset owners such as pension funds, sovereign wealth funds and insurance reserves, into the forthcoming United Nations Climate Summit — commonly referred to in UN parlance as UNFCCC CoP21.

Senior UNFCCC officials joined our dinner at the World Economic Forum, Davos, on the evening of January 22nd, 2015, to exchange views with pension fund leaders and high net worth investors.

A success in Paris?

The UN Summit is scheduled to convene in Paris in late November 2015. The CoP21 meeting is seen as a pivotal gathering to enable more than 200 governments world-wide to agree on a common and binding agreement to tackle global warming. The gathering in the French capital comes six years after a similar UN effort in Copenhagen in 2009 collapsed as a humiliating failure for many global leaders, including US President Barack Obama.

The IPCM-GLF-TBCG discussions, held during dinners and tailored events, started in Tokyo in September 2014, and then travelled through: Paris (Dec 14); the World Economic Forum, Davos (Jan 15); Tokyo (Feb 14); Paris (April 15); London (May 15); Stockholm (May 15); and London (Sept 15). Our new on-line Climate Investor Report, launched on 9th September, 2015, will keep investors up to speed as we build towards CoP21.

Report to Quai D’Orsay

In July 2015, the findings of the dinners held to date were summarised by Paul Clements-Hunt, an IPCM Partner and Founder of TBCG, for a group of 40 climate policy-makers from Brazil, Russia, India, China and South Africa (the BRICS economies). These influential policy-makers were brought together for two days ahead of CoP21 by the French Foreign Ministry at their historic and iconic Quai D'Orsay headquarters. France will act as the Presidency of UNFCCC CoP21.

The discussions in Paris in July, including the key financial and investor intervention by Clements-Hunt, helped contribute to a policy brief entitled: “The Paris Package: Setting the Finance Agenda for Climate Action,” which was produced in August 2015, after the two day gathering, by the New Delhi-based Indian think tank, Observer Research Foundation, that acted as a Co-Host with the French Government. (More information)

Click here to see the full ORF policy brief.