Environmental Social Governance (ESG)

Sustainable development goals: energy and climate action

By Rebekah Swan
ESG Investment Specialist, NZ / Client Advocate / Head of Product New Zealand

In my post last year I introduced the topic of the United Nations 17 Sustainable Development Goals (SDGs). These goals are a call for action by all countries to promote prosperity while protecting the planet. They recognise that ending poverty must go hand-in-hand with strategies that build economic growth and address a range of social needs, including education, health, social protection, and job opportunities, while tackling climate change and environmental protection.

At AMP Capital we’re thinking about the SDGs and how the investment that we are doing is impacting on SDG outcomes. While we don’t have specific SDG targets, in this follow-up post I look at two key SDGs and how some of the initiatives we are taking impact on these goals.

SDG 7 – Affordable and clean energy – Ensure access to affordable, reliable, sustainable and modern energy for all.

A global economy reliant on fossil fuels, and the increase of greenhouse gas emissions, is creating drastic changes to our climate system. Focusing on universal access to energy, better energy efficiency and the increased use of renewable energy is crucial to creating more sustainable and inclusive communities, and resilience to environmental issues like climate change.

This goal is especially important as energy is central to nearly every major challenge and opportunity the world faces today. Efforts to encourage clean energy has resulted in more than 20 percent of global power being generated by renewable sources, yet one in seven1 people still lack access to electricity. As demand continues to rise, there still needs to be a substantial increase in the production of renewable energy across the world.

Ensuring access to affordable electricity means investing in clean energy sources such as solar, wind and thermal. AMP Capital has recently started investing in green bonds, with the funds flowing directly to renewable projects across the world, including wind and solar farms, low carbon public transport and sustainable forestry.

Investing in green bonds ensures that important renewable projects get the finance they need to get off the ground. We are particularly passionate about green bond investments because the money raised goes straight to a climate-related or environmental project. Importantly, we can trace the funds and the impact they are having on the world.

Examples of projects being funded include renewable energy generation, energy and water management efficiency, new generation wind and repowering, and water management and recycling. You can read more about the New Zealand responsible investment fund green bond holdings in our latest RIL Engagement Report 2018.

At the global level, AMP Capital is also investing in cleantech, the next generation of environmentally friendly ‘clean technology’ companies. Investments in clean technology include three main sectors – solar, wind power and biofuels – and reduce negative environmental impacts through energy efficiency improvements, the sustainable use of resources, or environmental protection activities.

United Nations Development Programme

SDG 13 – Climate action – Take urgent action to combat climate change and its impacts.

Climate change is a real and undeniable threat to civilisation and it is safe to say that there is no country in the world that is not experiencing first-hand the drastic effects of climate change. Greenhouse gas emissions continue to rise and global warming is causing long-lasting changes to our climate system, which threatens irreversible consequences if we do not take action now.

As a responsible investment manager, we are targeting two things when it comes to engaging on climate change:

  • A clear path to a lower carbon economy.
  • Clear commitments and disclosures from companies on their path to lower emissions.

So how do we do this? We are working towards the first by participating in a range of industry initiatives on climate change policy and collective engagements with other large investors around the world. The voice of many is more effective than the voice of one!

The Investor Group on Climate Change (IGCC) is one example of this – a collaboration of Australian and New Zealand investors focusing on the impact that climate change has on the financial value of investments. Its mission it is to work with industry and governments on sensible climate change policy on behalf of investors.

AMP Capital is also a signatory to CDP, formerly the Carbon Disclosure Project, an organisation based in the UK which supports companies and cities to disclose the environmental impact of major corporations. The Project calls for greater disclosure on carbon emissions and climate change risk.

Secondly, when we engage with the board of companies we seek their commitment to initiatives such as the United Nations Taskforce on Climate-related Financial Disclosures (TCFD), which was handed down in 2017. The TCFD framework requires the disclosure of scenario analysis, including how companies will operate in a 2-degree world. We are actively engaging with energy and utility companies to comply with the TCFD and disclose their climate change scenario planning.

Carbon footprinting is another way AMP Capital assesses the climate risks of its investments and measures the exposure of a portfolio of companies to greenhouse gas emissions. Examining the carbon footprint across a portfolio is the first step towards understanding investment risk and provoking a discussion of the investment impact of emissions. 

As AMP Capital independently measures the emissions of every company that its responsible investment funds invest in, the fund managers share these measurements with the companies it invests in on the funds’ behalf. This leads to conversations with management and boards about the carbon intensity of their businesses and plans to transition to a lower carbon economy.

It is by no means the answer to understanding how much climate risk is contained in a multi-asset fund, but it is a simple measure of carbon emissions per $1 million invested at one point in time. We plan to track the footprint over time and expect the footprint to shrink as the companies in which the responsible investment funds invest emit proportionally fewer emissions than the standard index.

It is clear to me that tackling climate change and fostering sustainable development are two mutually reinforcing sides of the same coin – sustainable development cannot be achieved without climate action. Conversely, many of the SDGs are addressing the core drivers of climate change.

In my next post I’ll look at how we are tackling supply chain issues. This includes our ethical stance against companies that exploit their work force, which supports SDG 1 – No poverty, along with related goals SDG 8 – Decent work and economic growth, and SDG 12 – Responsible consumption and production.
 

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Important notes

This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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