Intellectual Forum awarded a P4NE grant to tackle fossil fuel investment
The Intellectual Forum, Jesus College, and the University of Cambridge have been jointly awarded a major £360k grant from Partners for a New Economy (P4NE) to support a project aimed at stopping the flow of money to fossil fuel companies.
The grant will significantly enhance the work of IF Senior Research Associate Lily Tomson, who is building a 1.5°C-aligned corporate bond index. This financial tool will help large-scale investors like the University of Cambridge or major pension funds to invest in alignment with the goals of the Paris Agreement and avoid funding the expansion of fossil fuel extraction and infrastructure.
In an interview with Partners For A New Economy, Lily spoke in more detail about what her work involves and what it aims to achieve.
What are you working on?
Experts say that if we want to have more than half a chance of tackling the climate crisis and building a safe and just planet, no new fossil fuel infrastructure can be built going forward. I work with a group of researchers and practitioners testing whether it is possible to build a tool to direct money away from the expansion of fossil fuel extraction and infrastructure.
We know we need some fossil fuels to keep the lights on right now, but the science is clear that to align with 1.5°C—the most the temperature of our planet can rise about pre-industrial levels while still avoiding the worst impacts of climate change—we should have stopped expanding in 2021. The tool we are building will aim to direct money away from companies in the power, banking, and insurance sectors as the main buyers and facilitators of new coal, oil, and gas. Approximately 90% of new financing for fossil fuel expansion comes from loans and bonds, rather than equities (shares). Bond indices, therefore, play a critical role in assigning new capital to expansion. Ours would be the first corporate bond index to exclude fossil fuels, power utilities, and financial sector issuers whose actions would result in a world of dangerous heating above 1.5°C.
How are you making progress on it?
We are in an exciting phase right now, as we now have the funding to pursue implementation. What that means is that we’ve got a feasibility study with very positive outcomes, and earlier than expected. It's been an interesting cultural process for me and the team in working out what level of uncertainty we are comfortable with to move forward on this. Nothing is ever going to be watertight, especially as we’re building something entirely new and working with new constellations of data and incumbent index providers. We are trying to balance the academic mindset, which is very evidence-based, alongside what feels much more like a social entrepreneur or intrapreneur mindset, building evidence up through testing it out in the world.
What demand is there for the product?
We have a core group of major global asset owners who are co-developing the project with us. These are investors that have the clout to potentially move global markets, and who say, “Wow, yes, we get this, we can see the bits that in investment terms you are going to find difficult, and we want to work with you on those and build this together.” Beyond this inner circle, it’s early days, but I’ve not had a single negative conversation and it’s been really striking how much interest there is from big asset owners internationally. They can see the need for an index aligned with the 1.5°C goal, and with an independent, evidence-based approach which can tackle a lot of the industry’s 'greenwash'.
What impact would you like the bond index to have?
Banks and insurers are playing an absolutely central role in financing the crisis that we’re in, but there’s not yet enough stringent focus on them as actors who could be seeing the world otherwise and could be doing something differently. And unlike, for example, a fossil fuel firm, facilitating expansion activity isn’t their core business model: it shouldn’t be that difficult for them to change their activities. We hope that the index gets fixed income teams globally thinking much more drastically about climate change and other systemic risks.
This is based on an article originally published by Partners for a New Economy. It is reproduced under a Creative Commons Attribution 4.0 International License.
