Investors Worth $3.22 Trillion Urge Action at Climate Risk Summit

NEW YORK, New York, May 10, 2005 (ENS) - Growing evidence of the negative economic consequences of climate change has prompted an alliance of institutional investors managing US$3.22 trillion to demand that capital market regulators require more rigorous corporate disclosure of climate risks.

The 2005 Call for Action came today from more than 400 financiers, government and civil society experts meeting at United Nations Headquarters in New York for a summit to explore risks to the investment world resulting from global warming.

The summit, co-hosted by the UN Environment Programme, the United Nations Foundation, the United Nations Fund for International Partnerships and the U.S. nongovernmental organization CERES, follows the first such gathering in November 2003.

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Mud and water remain in Casitas Springs, California homes where winter storms caused flooding that damaged private property and roads. January 15, 2005. (Photo by John Shea courtesy FEMA)
Citing the physical impacts, regulatory changes and lawsuits that are becoming more widespread, investors managing more than $2.7 trillion have joined the Investor Network on Climate Risk, a quadrupling from the network's initial membership at its launch in November 2003.

Klaus Toepfer, executive director of the United Nations Environment Programme (UNEP), told participants at the summit, "The local and global challenges created by climate change - environmental, economic and social - are manifold and will both multiply and accelerate in our lifetimes. For the world's financiers, investors and capital markets the time to act is now."

Toepfer said, "If our money markets are to manage climate risk more effectively, then we must have greater corporate disclosure of how companies are dealing with the economic threats posed by global warming."

The alliance is seeking to unlock US$1 billion in capital in the next year for investment in clean technology, in addition to other commitments.

"The necessary transition to cleaner, more sustainable energy systems presents enormous opportunities for innovation and change that will benefit our global economy," said Timothy Wirth, president of the United Nations Foundation and summit co-chair. "To manage the risks and achieve the business breakthroughs, creative, innovative uses of capital are critical."

The Call for Action was signed by 20 major investors, including the state treasurers of California, Oregon, Maryland, Maine, Connecticut, Vermont and New Mexico, and the comptrollers of California, New York State, and New York City.

"This issue is essential for Connecticut’s 160,000 state pension fund beneficiaries that stand to be harmed if their future financial security is put at risk by the lack of necessary analysis, planning and action on climate change," said Connecticut Treasurer Denise Nappier, who proposed and co-chaired the first Institutional Investor Summit on Climate Risk.

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Connecticut Treasurer Denise Nappier advocates disclosure of financial risks of climate change. (Photo courtesy Office of the Treasurer)
"But," she said, "it is also critical for any individual holding a mutual fund or stock in any business that may suffer financially as a result of inadequate preparation for the changing regulatory and competitive business environment resulting from global warming."

Public pension funds signing the Call to Action include the California State Teachers' Retirement System and the Illinois State Board of Investment.

Labor pension funds include Service Employees International Union, the Communication Workers of America, the International Association of Machinists, the Sheetmetal Workers Pension Fund, the International Brotherhood of Teamsters, the Union of Needletrades, Textiles and Industrial Employees, and the Hotel Employees and Restaurant Employees International Union.

The Nathan Cummings Foundation and the Presbyterian Church also signed the Call to Action.

In addition, European Investor supporters of the Call for Action include the Universities Superannuation Scheme, the Institutional Investor Group on Climate Change, and the London Pensions Fund Authority.

"Investors backing these practical and pragmatic steps send a strong signal to the markets that climate risk is real and needs to be managed aggressively," Toepfer said.

The co-hosts are backing three post-summit initiatives to support the Call for Action by the investors.

As well as seeking to understand the economic and financial risks associated with climate change, the business world is awakening to a range of emerging opportunities associated with efforts to tackle global warming.

It is estimated that greenhouse gas emissions trading markets could be worth $2 trillion by 2012 and it is further estimated that the market for clean technologies could be worth $1.9 trillion by 2020.

"On the one hand, the negative economic consequences of climate change are clear," said Toepfer. "Yet for the financial and business communities our efforts to adapt to and mitigate climate change and its impacts present emerging opportunities for those with the vision, entrepreneurial flair and commitment to embrace new business challenges," he said.

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Federal Urban Search and Rescue Team prepares to enter a damaged beachfront building on Orange Beach, Alabama that was battered by Hurricane Ivan. September 17, 2004. (Photo by Butch Kinerney courtesy FEMA)
The New York summit comes as the world's biggest reinsurance companies confirmed that 2004 saw the largest ever insured losses from natural catastrophes.

According to Munich Re, economic losses totalled US$145 billion in 2004. This included insured losses of US$44 billion from natural catastrophes, the highest ever recorded.

Swiss Re has published statistics that show 2004 was a record year in terms of claims, mainly dues to hurricanes, cyclones and typhoons.

"The trillions of dollars in assets of investors assembling at this UN meeting is a powerful message that global climate change is both an environmental threat and a financial threat, and that actions to mitigate these risks are needed now," said Mindy Lubber, president of the Ceres investor coalition and director of the Investor Network on Climate Risk.

At the same time, trading in emissions credits for carbon dioxide, the major greenhouse gas responsible for global warming, is taking off with large financial institutions taking positions in the market.

Credit Suisse, HSBC, Société Générale and JP Morgan are among a group of leading financial institutions which, together, have put €200.4 (US$258 million) into a new carbon fund known as Trading Emissions.

The new Trading Emissions fund will take an aggressive position in carbon assets - mostly EU Allowances and carbon credits arising from Clean Development Mechanism (CDM) and Joint Implementation projects under the terms of the Kyoto Protocol.

Under the Joint Implementation mechanism, an industrialized country with an emissions target to meet under the protocol invests in emission reduction or carbon dioxide sequestration projects in other countries with emissions targets. This earns the investor country emission reduction units (ERUs), which can be accredited on its national emissions target.

The Clean Development Mechanism results in certified emission reductions (CERs) created through projects in countries without targets. As with ERUs, CERs can also be accredited on national targets.

The Trading Emissions fund expects the price of carbon emissions credits to rise, particularly in the second phase of the EU Emissions Trading Scheme (2008-12) when companies' emission reduction targets are expected to be more strict than they are today.

It is the largest, but not the only carbon investment vehicle created to date.

The European Carbon Fund, launched by Caisse des Depots, IXIS Corporate and Investment Bank and Fortis Bank, also reaches the €100 million target.

In the United States, the Chicago Climate Exchange (CCX) is a greenhouse gas emission reduction and trading pilot program for emission sources and offset projects in the United States, Canada, Mexico, and Brazil. CCX members - which include large corporations such as Ford, Dupont, IBM, American Electric Power and International Paper - have made a voluntary, legally binding commitment to reduce their emissions of greenhouse gases by four percent below the average of their 1998-2001 baseline by 2006, the last year of the pilot program.