When Generation launched in 2004, sustainable investing was in its infancy. It was a niche segment of the asset management industry and a soft target for criticism that value, in the shape of financial returns, had to be sacrificed for values.
Into that environment we launched Generation with a singular mission: to deliver strong, risk-adjusted investment performance by taking a long-term view and integrating sustainability and environmental, social and governance (ESG) research into our decision making. Quite simply, we wanted to prove that sustainable investing was in fact, the most sensible way to invest.
17 years on and a lot has changed. It is difficult to argue that sustainable investing is anything other than mainstream. It is now generally accepted as a better way of spotting the long-term opportunities and risks facing a business that can ultimately impact its performance. And there is no doubt in my mind that a fundamental and important benefit of the rise in sustainable and ESG investing over the long term will be a cleaner planet and a more equitable, healthy and safe society. The growth in sustainable investing is undoubtedly a positive development for the financial services industry, business and society at large.
The defining decade ahead
However, through this period, the climate crisis has worsened. Leaving aside the data for a moment, a quick glance at the news shows new instances of climate catastrophes throughout the world. Nature reminds us daily of the scale of the threat and the growing challenge that confronts us.
To put the threat into context, aligning with a 1.5 degree Celsius (1.5C) world requires that we halve global greenhouse gas (GHG) emissions in the next nine years and that we achieve net zero emissions in just under thirty. The United Nations estimates we will need to mobilise up to $3 trillion per year through 2050 to achieve net zero.
Despite the significant amounts of money recently allocated to sustainable investing and climate solutions more specifically, our climate continues to deteriorate, and we still face an extinction crisis and rampant inequality across the world.
We are all too aware therefore of the scale of the challenge ahead of us and the speed required to address it. That will mean rapid and profound transformation for every industry, not least sustainable investment, which must now evolve at speed to meet the challenges head on. It is as true of investment as it is for every other sector that business as usual will simply not deliver within the time frame or with the scale required.
It is against that backdrop that we embark today on a new, complementary mission through a newly created subsidiary of Generation called Just Climate. Its mission is to limit the global temperature rise to 1.5֯C by catalysing and scaling capital towards the most impactful climate solutions. Simultaneously, it seeks to broaden what capital markets value by establishing climate-led investing as a capital allocation imperative.
Just Climate is founded on the belief that, such is the urgency of the climate crisis, capital going into climate solutions must now go broader and deeper. It is a recognition that despite the significant sums of money going into climate solutions, it is not enough, it is not flowing into all of the places it needs to be, and it is not having sufficient impact, given the urgent time frame. It is a recognition that as a sector, if we are to deliver against our net zero commitments, we need to seriously reconsider how and where capital is allocated.
Just Climate was founded to do the hard yards of addressing many of the most difficult to decarbonise segments of the global economy that investors have ignored until now, but that need to be addressed. It will prioritise climate impact and finance those typically asset heavy parts of the climate transition that are often too capital intensive, unproven at scale or in geographies too challenging for investors to consider. Finance is not travelling into these hard to abate sectors, which are not decarbonising fast enough and yet are responsible for a large portion of the emissions that need to be eliminated for us to reach net zero.
We cannot do this alone, even alongside our founding strategic partners in Just Climate which include Microsoft Climate Innovation Fund, Ireland Strategic Investment Fund (ISIF), IMAS Foundation, Harvard Management Company, Imprint Group of Goldman Sachs Asset Management, and Hall Capital Partners and its clients. The amount of money that needs to flow into these areas is eye watering, and climate transition finance itself will need to become mainstream over the coming years. Just Climate will create climate impact at scale by channelling capital into these hard to decarbonise areas while mobilising further capital flows from the rest of the market. It will also advocate forcefully for capital markets to incorporate climate considerations alongside risk and return considerations. It will make the case for climate transition investing to become an asset class in its own right.
None of the decisions facing our industry, or any industry for that matter, are easy. In every area, we need to challenge conventional thinking, take appropriate risks, and face up to the tough decisions that will take us to where we need to go. This is our ambition for Just Climate.