Shifting to a low carbon economic model at a global level will require an annual investment of approximately one trillion of dollars of investments by 2020, according to the International Energy Agency. The latest Climate Policy Initiative report shows that a third of this amount was achieved in 2013: 40 % from public actors and 60 % from private actors. Therefore, the private financial sector plays a critical role in shifting capital allocation towards low carbon assets.

Portfolio decarbonization can be achieved by withdrawing capital from particularly carbon-intensive companies, projects and technologies and by re-investing that capital into particularly carbon-efficient assets. When large institutional investors start to reallocate capital on the basis of companies’ GHG emissions it provides a strong incentive for those companies to re-channel their own investments from carbon-intensive to low-carbon activities, assets and technologies.

The Portfolio Decarbonization Coalition (PDC) is a multi-stakeholder initiative, launched in September 2014 at the New-York Summit, that will drive GHG emissions reductions on the ground by mobilizing a critical mass of institutional investors committed to gradually decarbonizing their portfolios.

This coalition is expected to send a strong and unprecedented signal to policy-makers, investor peers, and corporations, that investors see corporate GHG-emissions and climate change as ‘centre-stage’. They are now systematically integrating climate-change-related considerations into investment decision-making and portfolio strategy.

Pledge

1. First, it needs to become common practice for investors to measure and disclose their carbon exposure.To that end, PDC aimed at building a community of institutional investors measuring and disclosing the carbon footprint of a total of at least USD 500bn of assets under Management (AUM).
2. Second, based on carbon-footprint information, a critical and growing mass of investors world-wide needs to start taking action to reduce the carbon-intensity of their investments and portfolios. Therefore, PDC aims at assembling a coalition of investors who in aggregate commit to decarbonizing at least USD 100bn in institutional investment, before the end of 2015.
3. The third objective is to advance knowledge-sharing, innovation, and a better understanding of the strategies and metrics employed under various decarbonisation approaches. This is facilitated by publishing each member’s carbon reduction plan on the PDC website, and convening member networking events to enable the exchange of ideas.

How to join?

An asset owner organization has to make a climate-related disclosure pledge, for instance via the PRI’s Montreal Pledge, and it submits written commitment to ‘decarbonize’, within a specific time horizon, a specific fraction of the institution’s assets under management.

See: PDC membership commitment document for ASSET OWNERS

An asset manager organization has to submit written confirmation that it already is supporting, or firmly planning to support, at least one asset owner in portfolio decarbonization or similar climate-related capital re-allocation efforts.

See: See: PDC membership commitment do cument for ASSET MANAGERS

Photo credit: Carbon Visuals (Flickr)