NZ Super highlights climate priorities in investment approach
In Dubai this December, world leaders will assemble once again at the COP28 summit to address the climate crisis.
Agreements and objectives set out at the two previous COPs in Glasgow and Sharm El-Sheikh will be assessed. Pressure is on governments to show they are making tangible progress on their Paris Agreement commitments made eight years ago.
Anne-Maree O'Connor, head of sustainable investment at the New Zealand Super Fund told AsianInvestor that climate change is still a pressing systemic risk.
"The cost of inaction is far greater than the cost of action, so it is in the public interest that all parties act with urgency to mitigate climate change.”
O'Connor points to how the Climate Group’s six climate priorities resonate with NZ Super's objectives in its investment approach.
“They are a pretty good match with what we would see them as key objectives, particularly climate change, the biodiversity crisis and financing a safer, low carbon future," said O’Connor.
Energy security has taken central stage this past year, partly due to the impact of Russia’s invasion of Ukraine on energy supply.
“We’re seeing an intensification of fossil fuel production in the short term as countries attempt to meet their energy needs,” said Champa Patel, director for governments and policy at the Climate Group.
Even though investment in renewables equalled those in fossil fuels for the first time in 2022, fossil fuels are still heavily subsidised by governments, she said.
“COP27 fell short of reaching a consensus on phasing out fossil fuels but it can’t be off the table this year. Continuing attachment to oil and gas will only delay the development of clean and sustainable energy."
BIODIVERSITY CHALLENGE
The biodiversity crisis is closely related to climate change and presents another systemic risk. “A coordinated response would enable us to address these issues simultaneously,” said O’Connor.
Until recently, climate change has been discussed as an entirely separate challenge to biodiversity loss. “This is clearly a mistake, considering that climate change drives biodiversity loss and vice versa,” said Patel, though she sees this stance beginning to shift.
The 2022 UN Biodiversity Conference in Montreal saw some positive breakthroughs that could have implications for COP28. Parties agreed, for instance, on clear targets to address overexploitation, pollution, fragmentation, and unsustainable agricultural practices and recognised the need to align financial flows with nature to avoid supporting environmental harm.
“Progress here will support the Sustainable Development Goals (SDGs) and reduce emissions, while supporting climate change adaptation,” said Patel.
The need for concerted effort has never been greater and NZ Super’s O’Connor recognises that tackling these issues will require significant investment. “That in turn requires funding mechanisms that allow that investment to be made effectively,” she said.
Currently there is a $3.5 billion gap between annual investment made towards the SDGs.
“This will simply not be achievable if we continue to work in silos,” said Her Highness Sheikha Shamma bint Sultan bin Khalifa Al Nahyan, CEO of the UAE Independent Climate Change Accelerators group, addressing the Climate Investment Summit in London at the end of June.
With COP28 approaching, Al Nahyan said what matters is that progress is being made. But to reach agreed targets, investors must engage in what she called ‘radical collaboration’ between private and public sectors to scale emerging technologies and de-risk climate investment.
“We are already seeing this in action, through the work of funds such as the Global Innovation Fund (GIF), a non-profit investment vehicle focused on improving the lives of people living on under $5 a day,” she said.
The GIF brings together public and private capital, investing in promising climate technology, particularly in the global south.
“What inspired me was seeing the clear impact this business model has had. For every dollar GIF has invested, they have gone on to raise 7.5 dollars, a clear demonstration of the domino effect that can be achieved when we work together.”
Patel said the technology exists to decarbonise high-emission, high-demand sectors such as steel and concrete if investment is forthcoming.
“Wind turbines, solar panels, electric cars, sustainable buildings and low carbon ships are central to a zero-carbon economy. And they’re all made using steel. These intersections are critical – we must tackle the energy transition and the steel transition simultaneously.”
Climate Group is working with the UN’s High Level Expert Group and the COP28 presidency to find the best ways of holding governments and other actors to account for their climate promises.
The first ever UN Global Stocktake, which finishes at COP28, has been looking at whether countries have been making tangible progress on their Paris Agreement commitments eight years on.
“Their conclusion is widely expected to be ‘no’,” said Patel.