Many institutional investors in Canada consider climate change and carbon emissions to be the top environmental factors affecting their investment decisions.1 Fossil fuel divestment is often seen as the solution. However, consumption of goods and services makes up 90% of our economy's carbon footprint. So what can we do?
We need to work together and take broader action to reach the Paris Agreement goals. We can do this by being less dependent on fossil fuels from all activity sectors and making better use of different fossil and non-fossil energy sources.
Energy transition is one of the key solutions to global warming and climate change.
Basically, the idea is to reduce our fossil fuel dependency by replacing fossil fuels with cleaner energy.
Energy transition begins with a shift in our habits, so we can reduce our consumption. A big part in achieving this is making our buildings and technology cleaner and more efficient.
Four strategies to fight climate change
As a leader in a responsible investing, Desjardins uses a number of strategies to contribute to energy transition. Here are the main ones:
1. Shareholder engagement as a driver for change
Shareholders can use their influence to get companies to improve their environmental, social and governance practices. It's an approach that puts emphasis on corporate engagement. For example, by holding discussions with an electricity supply company, its shareholders can push for a faster shift from coal to natural gas.
Likewise, increased pressure on car manufacturers to offer a wider range of low emission vehicles would have a direct impact on greenhouse gas emissions. Therefore, shareholder engagement is a driver for promoting energy transition.
Shareholders can also support the most efficient companies in each activity sector by adopting a decarbonization approach. This means investing in companies that actively manage the environmental impacts of their operations.
A report from MSCI has shown that the MSCI ACWI Low Carbon Target Index,2 which is based on a decarbonization strategy, has a carbon footprint that's 33% lower than the MSCI ACWI ex Fossil Fuels Index.
3. High-impact investments
Investors can also support energy transition by financing green projects that increase the production of renewable energy and improve energy efficiency. They can also buy shares of companies with climate change solutions.
Divestment may be a solution for more specific cases, particularly when there are alternative options (e.g., replacing thermal coal with natural gas). Divestment can be used when the shareholder engagement strategy is unsuccessful.
If you have any questions about our responsible investment strategies, write to: IR@desjardins.com.
1 2018 report from the Responsible Investment Association in Canada. Water/waste management, clean technology and pollution/toxics are the other main factors cited by investors.
2 MSCI: Morgan tanley Capital International.
ACWI: All Country World Index