Climate Group Backed by TCI Billionaire Has a Transition Warning

(Bloomberg) -- A nonprofit backed by Chris Hohn, the billionaire money manager behind TCI Fund Management, says climate investors need to move into the highest-emitting sectors if they’re to effectively bring about a low-carbon energy transition.

It’s time for investors to come to grips with the “murky part” of climate finance, says Meryam Omi, the chief executive of Climate Arc. The group got its seed capital in 2022 from the Children’s Investment Fund Foundation, which is founded and chaired by Hohn. 

Money managers need to “learn how to incentivize the right behavior and not just focus on whether something is aligned to net zero,” said Omi, who used to be in charge of the responsible investment strategy at Legal & General Investment Management.

Globally, there’s currently more than $50 trillion of investments committed to 2050 net zero emissions goals. Yet those commitments have coincided with rising greenhouse gas emissions, making it increasingly unlikely that global warming will be limited to the critical threshold of 1.5C. 

Climate Arc provides guidance, data and funding to promote green investments. Financial backers that have joined since it was created include the AKO Foundation, a group created by former hedge fund manager and current CEO of Norway’s sovereign wealth fund, Nicolai Tangen, as well as Generation Foundation, which was set up alongside Al Gore’s Generation Investment Management. Sequoia Climate Foundation also has provided funding. 

Climate investors have “been talking about commitments and targets for a long time,” Omi said in an interview. “But now we need to talk about the transition. It’s not about 2030 or 2050, but what action do we need to take today.” 

“We are at risk of standing still,” she said. 

The comments mark a departure from the kinds of exclusion policies that are the focus of most climate activists. They also coincide with growing efforts by many activists to name and shame banks and investors for their continued financing of the most-polluting sectors. 

At the same time, transition remains a contested and ill-defined concept. Even as banks fill transition finance desks and asset managers launch transition funds, regulators have yet to delineate what the term covers. Some in the industry say it includes financing coal, albeit with a view to eventually winding it down. Others say transition should also include channeling available funds into renewables. 

The absence of an official definition has left a vacuum for others to fill. Later this week, Climate Arc intends to release its so-called TransitionArc platform during London Climate Action Week, with the ambition to “unlock transition finance at speed and scale.”

The platform is built on data from InfluenceMap, the World Benchmarking Alliance and the Transition Pathway Initiative, among other sources, and promises to identify gaps between climate disclosure and action. Starting with roughly 500 companies across seven sectors, including oil and gas, autos, airlines and steel, TransitionArc will assess companies’ progress toward net zero.

Companies will be graded on a scale of A to E, with an A score reflecting alignment with the 1.5C climate goal and an E being indicative of significant misalignment.

Felix Preston, who leads the research and programs team at Climate Arc, says it’s not about what companies say they’re doing. Instead, the key question is “does the data show they’re doing enough on the transition,” he said. 

The platform also will propose actions that companies can take to improve their scores, including setting more ambitious interim emission-reductions targets, increasing research and development funding for low-carbon technologies and ensuring engagements with policymakers are supportive of, not counter to, the goals of the Paris climate agreement.

“There can be no more excuses,” Omi said. “Yes it’s hard, but we need to show we’re moving in the right direction.”

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