In 1997, even though the United States signed the Kyoto Protocol, Bill Clinton’s administration never succeeded in getting the support of the US Congress to ratify it. The following US President, George W. Bush, did not budge from his conviction that the protocol would significantly hamper the US economy and that the emerging economies should increase their efforts. Fortunately, the current US President, Barack Obama, seems to be more favourably disposed towards tackling climate change. In June, the House of Representatives passed the historic American Clean Energy and Security Act, that plans to reduce US greenhouse gas (GHG) emissions by 17% below 2005 levels by 2020. While this is clearly a move in the right direction, these targets are less ambitious compared to those in other developed economies, which have also committed to progress on this issue. For instance, the European Union’s goal is to cut GHG emissions by 20% below 1990 levels by 2020 (and by up to 30% if an international agreement is reached).

Let’s not forget that developing nations have a large stake in curbing greenhouse gas emissions as well. The emergence of China as an economic powerhouse should not be discarded. The booming Chinese economy has recently overtaken the US as the largest emitter of carbon dioxide in the world. Nonetheless, China, like most developing economies, argues that it has the right to foster its economic development and that the US has historically been a much larger emitter than China.

It is clear that tensions between, on the one hand, the developing countries, that feel they have the right to advance their economies, and, on the other, the developed nations, are a continuing threat to reaching an international climate agreement. One challenge of defining the new Protocol will therefore be to strike the right balance between securing economic interests and ensuring sufficient action to mitigate climate change. The framework and the incentives the Copenhagen summit should provide are great stimuli to a low-carbon future. It is in the interests of all parties and particularly humankind.

Climate Change has a material impact on all kinds of business models

From an investor’s point of view, climate change is a serious long-term challenge with a material impact on all kinds of business models. The investment community, and particularly the Sustainable and Responsible Investment (SRI) community, has already taken some positive steps to promote the integration of climate change in its investment decisions, first, by encouraging transparency of companies’ GHG exposure through initiatives such as the Carbon Disclosure Project (which dates back to 2000); secondly, by educating corporations through highlighting the sound business case for addressing climate change, e.g., through energy cost savings.

Now, in order to go further, business and investors need a common playing field with the long-term rules of the game, in terms of GHG, clearly outlined. We firmly believe the Copenhagen summit is of importance as public policy needs to create market-based frameworks that promote the integration of externalities linked to climate change challenges into companies’ strategies and investment decisions.

Particularly, we are in favour of, for instance:

• a global agreement based on the latest IPCC (Intergovernmental Panel on Climate Change) study, that indicates that the developed countries should have reduced their emissions by 25-40% by 2020 (against a base year of 1990);
   
• a global framework for GHG pricing through, e.g., a global carbon market;
   
• a global agreement which encourages countries to offer continued incentives for investment in existing low-carbon technologies, including those that improve energy efficiency and increase the share of renewable energy.

Also, in terms of strategic allocation, investors should favour two types of investment. On the one hand, they should invest in funds that systematically include climate change challenges in traditional companies’ investment decisions. On the other, investors need to consider investment in niche green-tech companies offering sustainable and innovative products/services to combat climate change. This way, investors can size up the market opportunities created by climate change challenges and at the same time provide capital for the development of ever-more needed small emerging green-tech companies.

We firmly believe, too, in factoring climate change into investment decisions and hope that the Copenhagen summit will draw up the necessary framework, providing businesses the necessary market incentives to integrate climate change into their long-term strategies and investments.

Dexia AM is a signatory to the “Copenhagen Communiqué on Climate Change” & to the “Investor Statement on the Urgent Need for a Global Agreement on Climate Change”

The first initiative is overseen by the UK-based Prince of Wales’s Corporate Leaders Group in Climate Change (CLG, www.cpsl.cam.ac.uk) which brings together business leaders from major UK, EU and international companies who believe there is a need to develop new and longer-term policies for tackling climate change.

It is the definitive progressive statement from the international business community ahead of the United Nations (UN) climate change conference in Copenhagen this December. It has already secured the support of over 700 companies, from the US, EU, Japan, Australia and Canada, to Brazil, Russia, India, China and South Africa; ranging from the world’s largest companies and best known brands, to Small and Medium sized Enterprises (SMEs).

The second is a strong call from institutional investors to install a global agreement that will drive the financial flows necessary to address climate change. The statement is supported by 181 investment institutions, which collectively represent assets of $13 trillion. The Statement was produced by the Institutional Investors Group on Climate Change (IIGCC), the Investor Network on Climate Risk (INCR), the Investor Group on Climate Change/ Australia and New Zealand (IGCC Australia/New Zealand) and the UNEP Finance Initiative (UNEP FI).

Dexia AM is proud to have signed these two initiatives because we are convinced that sustainable economic development cannot be achieved without a stable climate. The Copenhague summit in December is the principal instrument to reach an agreement on climate change.

About the authors

Gaëtan Herinckx is head of sustainable and responsible investment at Dexia Asset Management

Jurgen Vluijmans is an investment specialist in sustainable and socially responsible investing and fundamental equity at Dexia Asset Management.