Abstract
An under-researched story is how large shareholders (e.g. Pension Funds) and investors (e.g. Export Credit Agencies) whose investments in fossil fuels may amount to trillions of dollars are implementing the Paris Agreement on Climate Change and in particular leaving fossil fuels underground (LFFU). Hence, this paper addresses the question: What arguments are used by shareholders and investors in making their financial flows consistent with LFFU, and what do these arguments imply for: access to fulfilling needs; allocation of related resources, responsibilities and risks; and, the right to (sustainable) development? This paper identifies the different arguments used and clusters them into five investor/shareholder scenarios. It assesses these scenarios using the inclusive (access and allocation) development framework. We find that there is prima facie evidence that fossil fuels and associated infrastructure are doomed to become obsolete and hence stranded, which poses a series of risks for (potential) investors and various stakeholders. Three of the five identified scenarios indicate that Pension Funds and Export Credit Agencies may transfer their risks associated with fossil fuel resources, assets and/or related knowledge to developing countries justified by the latter’s Right to Development. Such transfers have negative access and allocation impacts—creating, inter alia, a fossil fuel infrastructure and path dependency in the South and amounting to a de facto transfer of a carbon budget along with carbon dependency and related debt to the Global South.
Highlights
The Paris Agreement on Climate Change 2015 calls on countries to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” (PA 2015: Art 2c)
If Pension Funds (PFs) and aid agencies/Export Credit Agencies (ECAs) engage with fossil fuel (FF) firms and finance renewable energy, respectively, access to a stable climate, clean air, water and land, and functioning ecosystems will be dramatically improved in the short term and long term, for Developing Countries (DCs) and reduce the risk of overshooting on the Paris objective
This paper shows that there are billions—if not trillions—of funds allocated to the FF sector by ‘indirect’ actors like PFs and ECAs, though these are scarcely the subject of international debate within the climate regime nor are they the subject of extensive scholarship
Summary
The arguments on whether investors should hinder or foster fossil fuel investments (see Sects. 2.3 and 3.3) can be clustered in terms of choices that lead to five investor scenarios (three for PFs and two for ECAs). The arguments on whether investors should hinder or foster fossil fuel investments 2.3 and 3.3) can be clustered in terms of choices that lead to five investor scenarios (three for PFs and two for ECAs). PFs continue as climate-indifferent (i.e. investors who ignore climate change) shareholders. PFs divest and sell to climate-indifferent investors. PFs leverage their shareholder power to prompt FF firms to LFFU. Aid agencies/ECAs support the export of fossil fuel, and in the fifth they support only renewables. This section assesses these investor scenarios using the combined access, allocation and inclusive development framework
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