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January 21, 2014

Climate Summit Press Conference Focuses on Policy and Fiduciary Duty
    by Robert Kropp

Prominent representatives of government, business, and institutional investment meet with journalists to discuss strategies for increasing climate finance. Second of a three-part series. -- At a press conference held during the 2014 Investor Summit on Climate Risk at the United Nations last week, Mindy Lubber, president of summit host Ceres, emphasized why investment in climate finance is falling far short of the levels necessary to effectively address climate change in the time frame necessary.

According to Bloomber g New Energy Finance, clean energy finance decreased to $254 billion in 2013, 11% lower than the $281 billion recorded in 2012. In 2011, clean energy investment reached a high of $318 billion.

A 2012 International Energy Agency report stated that $36 trillion in global investment in clean energy will be required by 2050, a total which averages out to $1 trillion per year for the next 36 years. The primary purpose of the summit was to strategize how to increase clean energy investment to $500 billion by 2020 and $1 trillion by 2030.

Referring to the findings of a report from Ceres released during the day-long summit, Lubber said, “Among the most important recommendations is that we need a policy change at some point, to put a price on carbon that will drive investments.”

During the press conference, Christiana Figueres, Executive Director of the UN Framework Convention on Climate Change, seconded Lubber's emphasis on the necessity for policy reform, and stated, “Policy at the international level is inevitable.” She added that governments are stepping up their efforts to make the necessary reforms, even ahead of the 2015 deadline for doing so established during the most recent climate conference held in Warsaw late last year.

“There is an inverse relationship between the pace of policy and the scale of risk,” Figueres continued. “It is in the investor community's interest to have policy sooner rather than later. It is in investors' interest to encourage governments to increase the pace of policy development, which means putting a price on carbon.”

“The reduced volume of investment in 2013 reflected two main influences,” Bloomberg New Energy Finance stated in its press release, “a continued sharp reduction in the cost of photovoltaic systems, and the impact on investor confidence of shifts in policy towards renewable power in Europe and the US.”

Michael Liebreich, CEO of Bloomberg New Energy Finance, stated, “A second successive year of decline in investment will come as unwelcome news to the clean energy sector, but the top-line figures don’t tell the whole story. Investment in Europe crashed, in large part because of the falling cost of solar installations, whose volume worldwide actually grew by around 20% to a new record. Outside Europe, the picture was mixed, with some countries increasing and others reducing investment, and Japan the clear leader in terms of growth.”

At the press conference, Liebreich attributed the 55% increase in clean energy investment in Japan to “post-Fukushima rethinking of its energy policies and removing barriers to investment.”

Chiding some members of the media for focusing an inordinate amount of their attention on failures such as that of Solyndra, Liebreich said, “We've seen wind power at four cents per kilowatt hour. You can't match that with gas, coal nuclear; that is a huge success story.”

Liebreich also pointed out seven drivers of clean energy finance that he described as positive: dramatic reductions in costs; a recovery in public markets, such as the extraordinary rise of Tesla and the recent $3.2 billion sale of Nest to Google; new vehicles for investment; the green bonds initiative unveiled shortly before the summit by Ceres and a number of large financial institutions; the growing geographical diversity of investment opportunities; and the developing world coming on board very rapidly.

Again referring to the report released during the summit, Lubber of Ceres said, “Another recommendation is that institutional investors over time will set portfolio-wide goals for elevating clean energy investments across all of their asset classes.”

And Figueres of UNFCC added, “The fiduciary duty of institutional investors is clearly to invest the funds of the beneficiary owners in the interest of those beneficiary owners.”

Thomas DiNapoli, the Comptroller of New York State, agreed, saying, “Dealing with the issue of climate risk is totally consistent with fiduciary responsibility.”

As early as 2005, the Freshfields report asserted that the consideration of environmental, social, and corporate governance (ESG) criteria falls within the bounds of fiduciary duty. And a 2009 followup report was even more emphatic, arguing that consultants may well have a legal duty to proactively raise ESG issues with their clients.

Next: At the 2014 Investor Summit on Climate Risk, Ceres releases a report entitled Investing in the Clean Trillion: Closing The Clean Energy Investment Gap.

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