The challenges of environmentally sustainable development in the 21st century. How can institutional investors combat climate change ?

Environmentally sustainable development in the 21st century is one of the major challenges humanity is facing. While economic development on planet Earth has on average led to prosperity and progress, the flip side of the coin is environmental degradation. Particularly, climate change is going to have profound impacts on economies and societies in the decades to come if insufficient measures are taken. The mobilization of huge amounts of capital is necessary to achieve the transition towards a carbon-neutral economy by mid-century in accordance with the Paris agreement. The objective of this thesis is to investigate how institutional investors can drive this process through consultation of the literature and by means of an empirical investigation. The innovative approach of this thesis is to cluster levers and barriers, as identified in the literature, for mobilization of capital towards climate change adaptation and mitigation into five categories, thus providing a holistic view. Following on from the conceptual part of this thesis, questions were generated for each of these clusters and were presented to 31 fund managers in Italy, France, Germany, Switzerland and the UK via a questionnaire. Due to the limited size of the sample we cannot draw inferences from this sample for the whole population of institutional investors. Nevertheless, when combining these results with findings in the literature conclusions can be drawn. While momentum is building, evidence suggests that environmental risk assessment methods and sustainability/carbon disclosure practices are nascent. Moreover, market mechanisms like emission trading schemes around the world have failed to drive investors towards a greening of finance up to this point. Financial markets may not yet adequately factor in the impacts climate change might have because of their short- term orientation. Lastly, it can be concluded that sustainable investment standards must meet rigorous guidelines in order to effectively drive asset allocation in a positive way.