The UN meeting in Copenhagen in December to try and set new rules of the game on emitting green house gases, namely carbon dioxide, was in or around most conversations in Europe when I was there a few weeks back. Officially it is called the UN Framework Convention on Climate Change, and now in its 15th iteration. In simple terms, money managers are interested to know how the Kyoto Protocol gets updated, and impacts the price for pollution per country and sector based on government reactions. That is a lot of paper, bums on seats, and carbon-intensive travel, yes? Investors care because any change in regulation, anything that changes the costs structure of valuing a business, will impact the valuation of a firm, and so the investment in that firm. Leading ESG thinkers continue to try and improve the metrics, and why FTfm covers stories most Mondays. Money managers have been pushing companies to understand climate change impacts for years, through initiatives like CERES in the US and IIGCC in Oceana and Europe.
Pretty much any NGO or international organization (IO) in the sustainable finance or green investment space is putting out a position paper or shaping to be near the action, for example WWF Copenhagen Expectations. The UN is giving it a full-court press, see UN Climate Change, and Denmark is using it like
The mechanics of negotiating new climate change rules was rudely made apparent in a simulation exercise we did at the Tallberg Forum, hosted by Drew Jones, Sustainability Institute, USA for a consortium of NGOs, universities and think tanks like MIT, foundations and companies like Nike, Fidelity Investments, Schlumberger and Citi. Check http://climateinteractive.wordpress.com/. The C-ROADS simulation aims to do what the Prius dashboard or prepaid cellphones do: kep score. Keeping score by illustrating where the negotiations get us. Actually, maybe not that different from Greenpeace, just a lot more acceptable to the suits. An XLS-based algorithm drives graphs of the numbers describing the net effect ot the planet of all the positions and commitments. The graph captures the respective negotiating positions of parties to an agreement and in coloured lines describes how those commitments to investment capital in mitigating or adapting to climate change will affect the "score", illustrated by the parts per million (PPM) and average expected temperature. Scientists have us pointed toward 350-450ppm and not more than +2C if we aim to keep enjoying the planet as we have. The designers of the simple software want negotiating parties to use it live in
The simulated negotiation exercise was powerful too for putting the group into three groupings (developed countries, developing countries, and small countries and island states) with the way we played it out with subtle details like having the islands grouping I was in have no chairs, and sitting on the floor [see similar photo, above], while the developed countries had chair, flowers and fruit in their corner. Excellent role-play. Having been the undercover activist from time-to-time, my first offer to our group - basically nations like Maldives and
One of the leading pension fund and money manager groupings active against climate change since 2003 has been the Institutional Investors Group on Climate Change, IIGCC. The IIGCC published its second annual report yesterday, Second Annual Report - Investor Statment on Climate Change [see publications dating back to 2003] and represents assets of USD 5,575 bn [EU 4,000bn; GBP 3,440]. The report reflects the work by money managers in asking questions covering climate change from their underlying company investments, and fully 90% are engaging the companies to do more. But most interesting finding for me, was that the push to engage, a notoriously vague term with mixed or unmeasurable results, has played out. One of the leading ESG thinkers and head of responsible investment at Insight Investment, Rory Sullivan, was reported in FTfm as saying "We've got to the limit of engagement without stronger incentives". Check II's responsible investment page. Now money managers are feeling that the push to companies on business case or ethical case bases has reached its maximum, this is where regulation will make the next big breakthrough. FTfm's Sophia Grene reported [Call for Government Action on Climate, 13 July 2009] Stephanie Pfeiffer, programme director at IIGCC for the four workstreams as saying "We're going to be trying to influence the policy-making in the run up to Copenhagen". Knowing how adept money managers are with their spreadsheets, and the fountainhead of information that crosses their terminals and screens daily, I think a few money managers and analysts should accompany negotiators to Copenhagen, armed with XLS to immediately [it is 2009, after all] demonstrate what the numbers will mean. The money managers may even improve the simulation graphics. I wonder if they could get the Climate Change Exercise software to simulate a boatload of one million poor climate change refugees floating across the floor halfway through some waffling negotiation impasse…
(find Graham Sinclair @ http://sinclairconsult.com/WhoWeAre/tabid/73/Default.aspx)