Peter Chapman is executive director of the Shareholder Association for Research and Education. Robert Walker is vice-president of ESG services and ethical funds, NEI Investments. Hervé Guez is head of responsible investment research, Mirova. Clare Payn is head of corporate governance North America, Legal & General Investment Management.
Last year, we, along with a group of 120 investors with more than $4.6-trillion in assets under management, wrote to the Government of Alberta asking it to take a longer-term view on climate change.
We encouraged the government to implement a robust and credible climate policy crucial to the future success of Alberta-based companies. We said a broad-based and credible price on carbon is essential to address climate-change risks effectively. We not only supported the government of Alberta taking substantive steps to strengthen its climate policy, but argued such steps are absolutely necessary to ensure Alberta's success as a favourable investment jurisdiction.
Experienced investors – and businesses – do not blindly follow short-term trends. They are not jittery, distracted or easily led astray. They set long-term strategies and implement them effectively and consistently. However, without sound policy certainty, such strategies cannot take place.
It is important to set the stage for a just transition that helps Alberta workers, communities and businesses with the shift to a lower-carbon economy that provides steady, sustainable and well-paid jobs where they are needed.
Which is why decisive government action – including regulating potent methane emissions in the oil and gas industry; providing the right market mechanisms, such as progressive carbon taxes; and supporting innovation and investment in new technologies and industries by recycling revenues into targeted incentive programs – has never been more important.
The Government of Alberta, to its credit, is taking the long-term view on climate change and business.
It adopted a multitiered climate strategy provincially and played a positive role federally to help develop the national strategy agreed to on Dec. 9. It adopted carbon-pricing mechanisms that will progressively provide incentives for investments in new businesses and new technologies within Alberta. It created a framework that will reward innovation in its oil and gas industry and limit emissions from the oil sands sector.
It provided the leadership that is needed to attract long-term investment.
Unfortunately, some business and political commentators say we should abandon that progress, that the recent U.S. election result makes Alberta's leadership on climate change too risky. They suggest Alberta can no longer afford to price carbon effectively, that it can no longer afford to make a transition to a lower-carbon economy.
Markets face a constant barrage of information, the vast majority of which is relevant only in the short term. Second-by-second market fluctuations, a transportation bottleneck in some part of the world, missed earnings targets, an inflammatory comment by a politician – these may move markets briefly, but likely have little relevance to the long-term trajectory of our economy.
Institutional investors with a long-term investment horizon cannot afford to be swayed by such short-term pressures. Successful businesses, which plan capital expenditures and investments with a view to longer-term success, must put the daily news cycle in its place.
Yet governments, with a keen eye on popularity and election cycles, are vulnerable to short-term thinking, finding it difficult to keep their eyes on the future, even when building long-term economic success is at stake.
That is just bad business. An abundant body of research makes clear that failure to limit greenhouse gas emissions effectively now will lead to much worse economic outcomes in the longer term. Investors are keenly aware of our exposure to these risks. It is why the Financial Stability Board identified climate change as a key systemic risk to the financial system.
It is why investors representing more than $31.5-trillion in assets under management asked all governments to create the policies necessary to address these risks in the Global Investor Statement on Climate Change. And it is not just about the risks. Investors want action on climate change because it creates opportunities to invest in new industries, technologies, systems and jobs. Investing in the energy transition will likely be a defining theme for investors for decades to come.
The value of existing investments and the ability to attract new investment depends on decisive action now, with a view to building an economy that works for the long-term.
We encourage the government of Alberta to hold fast to its plan by continuing to set the basis for a strong carbon price, tightening regulation of methane emissions and promoting the development of low-carbon industries. As responsible investors with long-term thinking, we believe clear, decisive and consistent government support for investment in a sustainable economy and new business opportunities represent a sustainable path toward prosperity.