Climate change: Why firms that don't cut emissions look set to lose out in the future

Companies that fail to cut their carbon emissions look set to lose investors in the coming years, one of the outcomes of the recent climate talks in Scotland.

While climate campaigners and nations pushing for bigger steps to be taken to fight climate change came away underwhelmed, a growing number of private investors are putting their money where their mouths are. 

The Glasgow Financial Alliance for Net Zero (GFANZ), set up in April, brings together asset managers and financial institutions pledging to only invest in businesses that are already at, or have plans to be net zero when it comes to carbon emissions by 2050.

"What that means is they'll direct more funding towards green companies, or those companies that are helping decarbonise; and less to those companies that will stay being high polluters," Milford Asset Management portfolio manager Frances Sweetman told The AM Show on Thursday. 

During the Glasgow COP26 talks, GFANZ said it now represented managers with US$140 trillion in assets - more than the entire global GDP. In the short-term they're expected to deliver "their fair share of 50 percent emission reductions this decade", and report their progress annually. 

"The architecture of the global financial system has been transformed to deliver net zero," said UN special envoy for climate action and finance Mark Carney, who also advises UK Prime Minister Boris Johnson on finance issues. 

"We now have the essential plumbing in place to move climate change from the fringes to the forefront of finance so that every financial decision takes climate change into account. Only this mainstream focus can finance the estimated $100 trillion of investment needed over the next three decades for a clean energy future."

Sweetman said companies who don't decarbonise might struggle to raise investment in the future.

"That has quite a serious implication for the share market and particularly those companies that are high polluters and are not dedicated to reducing their carbon emissions."

Kiwi investors should also avoid putting all their money into coal, Sweetman warned. One of the agreements reached in Glasgow was to phase out coal use by the 2030s, a "reasonably ambitious" target. 

"We have one coal-fired power station, and its owner Genesis Energy has already sort of indicated it wants to phase out in that time scale. 

"The more important implication is the other coal-fired boilers and manufacturing processes that we have around New Zealand - which we've got a lot. In order to transfer those to either be powered by renewable electricity or by biomass will take a lot of investment, particularity in the electricity grid. That part's really important - who's going to invest in that grid upgrade, and when and how?"

Another agreement New Zealand signed up to was a global effort to cut methane emissions by 30 percent. Luckily for our heavy methane emitting industries, not every country has to do the full 30 percent.

"Not every country has to reduce by 30 percent - some can reduce more, some can reduce less. Our Zero Carbon Act has us reducing methane by 10 percent - is that enough, or do we need to do more? Fonterra is looking into some of the science behind how we do that, but it's not yet clear."