A “fundamental tipping point” was reached in the investment industry’s move towards a green economy this week. After a wave of new climate commitments from asset managers, USD43 trillion in assets are now committed to the goal of achieving net-zero carbon emissions by 2050.
“There’s a lot more to achieve, but the sector is increasingly on a path to a net zero future,” said Stephanie Pfeifer, the head of the Institutional Investors Group on Climate Change.
The investment industry is making ambitious strides, however, it still lags far behind clean energy targets, with only USD150 billion invested last year, nowhere near the USD5 trillion of investment the International Energy Agency says is needed annually up to 2030, for the world to reach net zero by 2050.
This investment gap is becoming a major problem for developing countries, as they attempt to accelerate their transition to a low-carbon economy. The G20 meeting of finance ministers and central bankers in Venice this weekend is expected to grapple with solutions to the problem, including climate debt relief for low-and-middle-income countries.
‘Blended finance’ is one model that asset managers and governments have been trialling as a way to stimulate private investment in the energy transition. BlackRock has raised USD150 million from governments of France, Germany, and Japan, in addition to charities and investors, to invest in clean energy infrastructure for developing countries.
However, priorities may need to shift even further if similar initiatives are to take off. A new survey from Investcorp revealed that institutional investors consider climate change only the third biggest trend that will shape the global economy in coming decades. It was ranked behind digitalisation and ageing populations.
Asset managers are feeling the pressure to spend more on digital as a way to retain clients, who increasingly expect a digital-first experience. Traditional money managers are feeling the pressure as low-cost passive investing and app-based challenger banks continue to blossom, squeezing their margins.
Madeleine Taylor
Editor, Institutional Asset Manager
maddy.taylor@globalfundmedia.com