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World’s largest sovereign wealth funds to act on climate

OPSWF CEO summit

The members of the One Planet Sovereign Wealth Funds (OPSWF) coalition set out to establish a permanent organisation to track progress on three key areas of focus.

  • Members of the One Planet Sovereign Wealth Funds (OPSWF) Network met with government officials and company executives to renew their commitment on meeting the Paris Agreement goals.
  • The three workstreams are climate data, clean hydrogen and renewables in emerging markets.
  • Sovereign wealth funds manage over $10 trillion worth of assets, concentrating state power in driving investment trends.

French President Emmanuel Macron, US Special Presidential Envoy for Climate John Kerry and head of the task force on Climate-Related Financial Disclosures Mary Schapiro met with 46 chief executives and leaders of the OPSWF Network in October 2022.

Renewing the commitment to Paris Agreement goals

At the meeting, hosted in Abu Dhabi one month before COP27, members announced plans to formally establish OPSWF as a permanent organisation to implement a climate framework. This is expected to foster collaboration between asset owners and asset managers.

Kerry said: “Redoubling our efforts to scale-up investments in climate action, including in some of the world’s fastest growing markets, will be critical to make these ambitions a reality. 

“The One Planet Sovereign Wealth Funds initiative, under President Macron’s leadership, has the potential to drive market transformation, leveraging the experience of sovereign wealth funds, asset managers, and private equity funds to mobilize finance for low emission, resilient transitions around the world.” 

He added: “Together, by moving from words to action, we can use national wealth to help create a more prosperous and sustainable planet for generations to come.”

The Network’s three workstreams 

The OPSWF has published statements on the three areas it will focus on to tackle climate change: climate data, clean hydrogen and renewables in emerging markets.

Sovereign wealth funds, like many other investors, lack reliable data to measure, manage and mitigate the impact of their portfolio, mostly because most private markets do not require the disclosure of climate-related data. This means that investors cannot incorporate climate issues in their investment decisions.

The network has published an executive brief to support private markets players in disclosing climate data, which includes five steps to measure a company’s environmental impact – starting with the carbon footprint estimate and progressing to other types of fully measured, reported and verified footprints.

It is also betting on clean hydrogen as a key contributor to reaching the Paris Agreement goals. OPSWF said investment can be accelerated over the next five years, spurred by stimuli to the demand-side, measures to facilitate international trade and sectoral contracts-for-difference in clean hydrogen and their derivatives.

The third workstream is investing in renewable energy in the markets of emerging and developing economies, which is seen as a “massive investment opportunity from the triple perspective of impact, risk and return”.

It is critical to reduce emissions of these countries while meeting their rising energy demand, but the relevant markets are often difficult to access due to fragmentation or lack of standardised regulation.

The power of sovereign wealth funds

There are 98 active sovereign wealth funds in 70 countries, managing over $10 trillion worth of assets, according to a report published by IE University in March 2022. If combined, they would become the world’s third largest economy, after China and the US.

The sheer size of their portfolios means that they can lead major investment trends around climate, especially in the private markets where transparency is still lacking.

Their fund allocation will accelerate climate projects and technology, while their focus on climate-related investments will encourage other asset managers to follow suit by proving the value of sustainability.

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