Boris Johnson declared that COP 26 was “a big step forward” and Greta Thunberg summarised the event as “Blah, blah, blah”. After an extended build up, the 26th conference of the parties overran on Friday 12th November as world leaders sought to finalise an agreement. A late change to replace “phase out” with “phase down” in relation to the use of coal, at the request of China and India, has dominated the headlines but what do the events in Glasgow over the last couple of weeks mean to the financial services and alternative investments industry?
November 3rd was finance day and there were a couple of particularly relevant areas to consider. The transition to net zero by 2050 and limiting global temperatures to an increase of 1.5 degrees above pre-industrial levels is going to require considerable investment. And public investment alone will not suffice, mobilising private capital is going to be key. Mark Carney, UN Special Envoy on Climate Action, was quoted declaring that “they have all the money they needed” to fund the transition to renewable energy following the announcement of the Glasgow Financial Alliance for Net Zero (GFANZ). A global alliance of 450 finance firms spanning 45 countries who jointly manage $130 trillion including high profile co-signatories such as Larry Fink, CEO at Blackrock, and Michael Bloomberg. Developing the infrastructure to facilitate putting this capital to work is now the aim.
PwC’s 2021 Global Investor ESG survey reported that 73% of investors wanted companies to use a recognised framework when preparing their ESG reporting. The myriad of reporting standards making comparability of reporting a painful if not impossible exercise for non-financial reporting is often cited as a critical barrier for putting private capital to work more effectively. Therefore, the announcement of the International Sustainability Standards Board (ISSB) by the International Financial Reporting Standards Foundation feels like a landmark moment. The board will work to provide a globally aligned ESG reporting framework, consolidating existing standards currently available from the CDSB, SASB and VRF among others.
More locally, Rhisi Sunak the UK Chancellor, announced plans to make the UK’s financial centre aligned to net zero. Under the proposals, there will be new requirements for UK financial institutions to publish their net zero transition plans. Putting climate change firmly on the agenda for board rooms across the country. The board of LGL Group recently approved the move to net zero for our business and as a result we are starting our carbon audit to enable us to offset to zero and formulate a plan to reduce emission on an on-going basis.
Another area of focus within alternatives should be the real estate industry. The built environment is directly responsible for 25% of the total UK carbon footprint. The UK Green Building Council (UKGBC) has launched a Net Zero Whole Life Carbon Roadmap for the UK Built Environment. The impact of the roadmap will require careful consideration by private real estate funds and their managers.
As we digest the huge amount of content and discussion over the coming weeks’ I feel there will be an element of disappointment that bolder steps were not taken. “Phase out gate” might be a missed opportunity but Jennifer Morgan, director at Greenpeace articulated it well stating “it’s meek, it’s week and the 1.5 degrees goal is only just alive, but a signal has been sent that the era of coal is ending. And that matters.” It is perhaps significant that there were more delegates at COP 26 associated with the fossil fuel industry than from any single country. Campaign groups argue that the world health organisation didn’t get serious about banning tobacco until all the lobbyists for the industry were banned from WHO events. Perhaps this is something to consider for the next gathering in Egypt next year.
However, in the spirit of positivity is was also promising to hear that leaders from more than 100 countries representing about 85% of the world’s forests, promised to stop deforestation by 2030. With the loss of biodiversity being the next issue for a generation on the horizon it is encouraging that steps have been taken.
Despite the number of omissions on matters that could, and perhaps should, have been taken at COP 26, such as the criticism for the increase in potential offset loopholes that threaten to damage the impact of the emission cuts as we work toward net zero, there were some highly significant pledges. However, pledges do not cut emissions, the actions need to back up the speeches and since the UK, as host nation, was one of the nation’s leading the way, perhaps we need to scrutinise our own actions closely. Our acceptance to drop the Paris climate goals from our recent trade deal discussions with Australia is a far step from the public stance we have taken on the global stage over the last couple of weeks.