Good Money 14 Sep 2016

Investing for a transition to a 2 degree world

Even though we walk the talk – and are fully committed to 2 degree alignment – it’s been difficult to prove just how climate friendly our investments are. That is, until now.

 

Australian Ethical has always invested for a safe climate. We work hard to select climate friendly investments for our members so they can rest easy. This means investing in clean energy solutions like energy efficiency, renewable energy and battery storage. It also means avoiding investments in fossil fuels.

However even though we walk the talk it’s been difficult to prove just how climate friendly our investments are. That is, until now.

Measuring investment portfolios alignment with 2 degree initiatives

We were excited when we learned that the 2° Investing Initiative in Paris had developed a way of measuring the alignment of investment portfolios with a safe climate future.

Their approach uses IEA data to establish what changes each sector of the economy needs to make in order to limit global warming to below 2 degrees. Bottom-up analysis of companies within that sector is then conducted to see whether they are making the changes required to decarbonise.

Using this company and sector information the 2° Investing Initiative can analyse any investor’s portfolio to see if it is aligned with a safe climate future.

What is distinct about the approach is its forward looking perspective which tests a company’s future impact on global warming. This approach is very different to the widely used ‘carbon footprinting’, which looks at a company’s past emissions. This difference matters because high emissions today could be the result of building new clean infrastructure for a low emissions future.

So what did the experts say about Australian Ethical?

2° Investing Initiative assessed that our investments outperformed the 2 degree benchmark!

For example, they looked at our exposure to renewable energy and found, “The Australian Ethical portfolio has a higher renewable power exposure than the market average in 2015. It builds out roughly in line with the 2°C trajectory, thus outperforming the 2°C benchmark in 2020” (see below).

2dii-renewables-graph

2° Investing Initiative also looked at our investment (or lack thereof!) in fossil fuels and found:

“The Australian Ethical portfolio underweights all fossil fuel production and contains no coal production at all. It thus outperforms the 2°C benchmark.”

Why 2 degrees?

2° Investing Initiative have used the 2 degree goal as the foundation for their analysis.

Science tells us that 2 degrees is the maximum temperature increase the global system can take before the risks of runaway climate change become extremely dangerous. Extreme heat waves, declining global food stocks, loss of ecosystems and biodiversity, and life-threatening sea level rise are all likely possibilities.

That is why global governments agreed at the 2015 Paris COP to limit warming “well below” two degrees and to keep open the option of a 1.5 degree limit.

But even 2 degrees has risks and Australian Ethical advocate that warming should be limited as far below this level as possible.

Where to from here?

Understanding the climate impact of our investments enables us to measure, manage and report progress on our decarbonisation commitments under the Portfolio Decarbonisation Coalition and the Science Based Targets Initiative.

We encourage other investors looking to align their investments with a safe climate future to consider having their portfolio assessed.

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