Insights: Investors, shareholders play a key role in financing decarbonisation

Climate change, a global crisis that’s unfolding in real time, is rapidly elevating the urgency for a transition to a low-carbon economy. While governments, businesses, and individuals all play pivotal roles in combatting this crisis, another critical group has the power to effect significant change: investors and shareholders. Decarbonisation

Their influence and resources are potent tools that can stimulate companies to focus on achieving carbon neutrality and expedite the journey towards a sustainable future.

By engaging in constructive dialogue with the companies in which they have stakes, investors and shareholders can drive change. Conversations must address critical topics such as carbon emissions, climate risks, and sustainability strategies.

Prioritising and investing in carbon neutrality measures enables companies to align their actions with the investors’ and shareholders’ goals. Such engagement not only mobilises finance but also signals a commitment to the sustainable future these stakeholders desire.

Advocating for decarbonisation targets

Investors and shareholders possess a powerful capacity to champion the cause of decarbonisation targets and the implementation of near-term milestones. These measures are instrumental in staving off market obsolescence and meeting regulatory challenges.

As the demand for palpable progress grows, it’s imperative for organisations to channel investment into the research and development of low-carbon alternatives.

By outlining clear long-term decarbonisation targets and dissecting them into achievable short-term milestones, companies can convincingly demonstrate their commitment to their investors. This level of transparency instills a sense of urgency, compelling immediate action towards carbon neutrality, and bolstering investor confidence.

It is worth noting that certain organisations, including Engie, have already embarked on this journey by setting ambitious decarbonisation goals.

Adopting an ESG-focused approach

Adopting an ESG-focused approach in decision-making processes is another way investors and shareholders can contribute.

By evaluating companies based on their carbon footprint, sustainability policies, and climate-related risks, investors can direct their resources towards low-carbon initiatives. This method drives companies to improve their environmental performance and aligns with the growing demand from the investment community for sustainable practices.

It also presents an advantage as companies with robust ESG performance often benefit from lower capital costs, being perceived as less risky and more resilient to environmental and social risks.

Collaboration and joint efforts

Collective efforts also hold immense potential for achieving climate goals. By joining networks and initiatives focused on sustainable finance and carbon neutrality, like Climate Action 100+, investors unite to engage with significant carbon emitters and push for ambitious emissions reduction targets.

Such collaborations enable the sharing of knowledge, exert collective pressure, and catalyse systemic change across sectors.

Investors also have the chance to join alliances that champion industry decarbonisation. Such participation can trigger transformational change within industries, mitigate greenhouse gas emissions, and expedite decarbonisation efforts. They provide a platform for investors to utilize their expertise and back global decarbonisation initiatives.

These collaborative networks and alliances offer investors the chance to amplify their influence, foster collective action, and expedite the financing of carbon neutrality measures on a global scale.

To sum up, investors and shareholders wield significant power to steer the transition to a low-carbon economy.

Through active engagement with companies, integration of ESG factors, backing shareholder resolutions, participation in investor networks, and allocation of capital to green investments, they can play a critical role in financing carbon neutrality. Such actions not only foster corporate accountability and encourage sustainable practices, but they also help remodel the business landscape towards a more environmentally conscious future.

It is crucial for investors and shareholders to harness their collective strength and work collaboratively to confront climate change, paving the way for a brighter tomorrow.

The writer is the head of AIFA (Acquisitions, Investments & Financial Advisory) for Middle East, India, Africa, ENGIE.