Multilateral organizations and platforms for intergovernmental dialogue, such as the G7, G20 and annual COPs, represent a key mechanism for building a sustainable financial system and for climate action.
The G20 platform has evolved considerably since its conception. Previously, it focused on global financial stability, whereas today representatives use it to forge dialogue and consensus on interconnected issues, such as the global energy transition, public health and development.
Its voices have also diversified and institutionalized to form formal engagement groups, such as youth (Y20), women (W20), business (B20) and civil society (C20).
Throughout the year, as Canada’s youth delegate to the G20, I negotiated formally and informally to ensure that G20 outcome statements are consistent with a sustainable and livable planet. Along with youth delegates from other G20 countries, our negotiations and consensus culminated in the release of the Y20 Communiqué, signed in July in Bandung, Indonesia.
In this article, I explained why it is important for investors to align their action on climate change with that of youth voices, and the long-term financial, environmental and social implications of not doing so.
Rampant climate change is costing financial markets and our livelihoods
With extreme weather events occurring five times more frequently than fifty years ago, their direct economic cost has increased nearly eightfold worldwide, seriously threatening the long-term performance of our economies, investors’ portfolios and their beneficiaries. These global challenges are intersectional and intergenerational, which means youth and Y20 advocacy can play a key role in mobilizing and delivering climate finance commitments.
Not only today’s young people and future generations, to be disproportionate affected by the planet’s shrinking habitability, we also inherit a world that is inherently more expensive and offers fewer opportunities than that of our parents’ generation. Climate change aggravates existing inequalities, marginalization and exclusion, and is a vulnerability multiplier.
Massive displacement of people and communities due to extreme weather events can also lead to social exclusion and loss of cultural identities, with up to 216 million people potentially forced to migrate by 2050.
The climate emergency not only threatens the enjoyment of all human rights, but also the right to life, with serious human rights violations already becoming evident. A report by the UN Special Rapporteur on the promotion and protection of human rights in the context of climate change highlights the serious disconnect between those who continue to support the fossil fuel economy and those who are most affected by the impacts of climate change.
This has implications for long-term investors, especially as global trends in regulation, litigation, and social expectations pose significant risks for investors who fail to engage on the social impacts associated with the climate in their portfolios. And as the climate crisis deepens, it becomes increasingly urgent for investors to address the physical climate risks to which their portfolios are exposed.
Investors’ environmental and social risk assessments are often siloed, leading them to inadequately manage climate-related human rights impacts. This gap must be bridged so that investors can adequately discharge their fiduciary duties by generating returns while taking into account the actual results of all investment activities.
A stable and strong political environment is important for long-term investors and for our planet
Net zero targets now cover 90% of global GDP and more than 160 financial institutions have committed to a 2050 net zero target set by the financial industry. But what value are goals if there is no plan to achieve them?
A conducive policy environment is essential to incentivize capital flows to finance the transition to net zero across the world. National climate action plans – underpinned by concrete, robust and equitable policies – are equally important for young people because they can mitigate climate impacts and protect the best interests of future generations against the damage caused by climate change. . On the other hand, the absence of a clear, coherent and supportive policy environment can undermine investor (and civil society) confidence and exacerbate the risk of capital misallocation.
Case in point: the G20 has paid over US$3.3 trillion in fossil fuel subsidies since the Paris Agreement. Fossil fuel subsidies undermine efforts to mitigate (and adapt to) climate change in the face of a shrinking global carbon budget. They create distortions, generate inefficiencies in energy production and consumption across economies, and distort capital allocation at the risk of locking up and tying up assets at enormous opportunity cost.
The current triple threat of energy security, the cost of living crisis and the climate emergency, as well as the ongoing geopolitical conflicts, should make it very clear that there is no room for new fuels infrastructure. fossils in a world that wants to limit global warming to 1.5°C.
What can investors do?
At this critical stage, investors can:
1. Read the policy proposals outlined in the Y20 communiqué and amplify the voice of young people – increased cooperation between young people and investors will strengthen our collective action;
2. Engage in policy advocacy and sign the 2022 Global Investor Statement to Governments on the Climate Crisis, and join other investors calling for clear and ambitious policies that would mobilize the private capital needed to effectively tackle the climate crisis. climate change ;
3. Mainstream just transition principles into investment decision-making, incorporating the social dimension into assessment, stakeholder engagement, capital allocation, and corporate and policy commitments. Ensure that affected communities are not disproportionately marginalized in processes and outcomes, and that future generations are not burdened with a carbon debt.
Young people are very sensitive and disproportionately affected by the climate crisis and need governments and the private sector to go further and faster. The voice of youth-led platforms like the Y20 can help investors understand this, because we cannot talk about financial system stability or economic growth without a livable planet. The planetary crisis transcends national borders, social groups and economic sectors as a common concern for humanity.
Investor actions can either enable or limit positive concrete outcomes for future generations. While bond maturities can vary between one and 30 years and the average shareholding lasts only a few months, the impact of investment decisions made today – whether in infrastructure, critical technologies or fossil fuels – will be what future generations will live with for decades to come.
This blog is written by PRI staff members and guest contributors. Our aim is to contribute to the wider debate around topical issues and help showcase some of our research and other work we undertake to support our signatories. Please note that while you can expect to find articles here that broadly reflect the official views of the PRI, the blog authors write in their individual capacity and there is no ‘inside view’. The views and opinions expressed on this blog also do not constitute financial or other professional advice. If you have any questions, please contact us at [email protected]npri.org.