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Road to COP26: Crucial opportunity to focus the mind

Stephanie Maier, global head of sustainable and impact investment at GAM Investments

Climate change is a systemic risk to our planet and therefore also to the wider financial ecosystem.

COP26 is a crucial opportunity to focus the minds of both policymakers and the financial sector on how they can work together to deliver positive environmental, social and investment outcomes.

We are seeing incredible momentum in the run up to the delayed COP26 negotiations, with legally binding net zero commitments from governments, asset owners and asset managers, but there is more work to be done.

Agreeing tangible and ambitious commitments from a range of parties at COP26 will be imperative to further building on this momentum and getting us on to the net zero emissions trajectory by 2030.

Ambitious climate pledges from governments, backed up by coherent policy frameworks will be key to unlocking finance to support the low carbon transition and build resilience.

My hope is that we will continue to see strengthened nationally determined contributions in line with limiting global warming to 1.5 degrees, with clear net zero targets set at a national level and sectoral decarbonisation roadmaps.

On more specific commitments, we are already seeing progress on phasing out of coal-based power generation and the removal of fossil fuel subsidies.

We are likely to see further support for mandatory climate risk disclosure in line with Task Force on Climate-related Financial Disclosures (TCFD) and the focus on finance will be both on ‘greening finance’ and ‘financing green’.

It is also incumbent on investment firms to articulate how they will hold companies to account in meeting these ambitious targets.

It is my hope that COP26 will see more investors call on their holdings to outline in detail how they planned to slash their emissions, rather than simply making pledges.

We believe that meeting the Paris Agreement goals requires action from all sectors of society.

While decarbonisation will not be straightforward, investors’ decisions have direct influence on companies, markets and economies, and we are committed to playing our part.

MSCI: Global companies failing on climate goals

Victoria Gillespie, head of JTC ESG Services

As policymakers digest the alarming findings from the IPCC’s report, and with COP26 barely a few weeks away, financial institutions – including asset managers and asset owners – are playing an increasingly integral role in addressing the climate crisis.

Inflows into sustainability-focused funds have accelerated, especially since the Covid-19 pandemic as investors look to obtain socially responsible returns.

Data from Morningstar shows that AUM controlled by sustainable funds is poised to surpass $2trn this year.

This comes as ESG funds exhibit robust performance.

Inflows are being facilitated by changing regulations too.

The EU introduced the Sustainable Finance Disclosure Regulations [SFDR] which requires asset managers to publish details about how they integrate sustainability into their investment processes.

Similar rules are expected in the UK  with managers running more than £5bn now expected by the Financial Conduct Authority [FCA] to provide climate-related disclosures modelled on the Financial Stability Board’s TCFD template.

According to CP21/17, the FCA will oblige managers to publish an entity-level TCFD report about how they take climate related risks into account together with annual product/portfolio level disclosures.

Through the establishment of a stronger disclosure regime, investors will be able to obtain better insights into how fund managers integrate ESG into their strategies.

We hope to see firm, yet proportionate commitments from all COP26 participants supporting a fair transition to net zero.

Asset managers have an important role to play in achieving COP26’s targets.

This can be done if managers divest from pollutant companies which refuse to change their operating models, or exercise votes at AGMs so as to urge businesses to embrace emissions targets and enhance climate change reporting. 

Through the industry’s growing focus on sustainable investing, we believe asset managers can make a real difference enabling the shift to net-zero.

Ninety One study: Investors ready to support net zero regardless of returns

Steve Waygood, chief responsible investment officer at Aviva Investors

In 1962, President John F. Kennedy announced his government’s ambition to put a man on the moon by the end of the decade. His speech is famous for its rousing rhetoric: “To do all this and do it right… then we must be bold,” he said.

The fight against climate change is often likened to Kennedy’s ‘moonshot’, and with good reason.

But climate change is a more complex technical problem than spaceflight – and much more expensive to solve.

To mobilise the required capital, we are relying on collaboration between governments and a patchwork of different private organisations, most of which emerged in the service of a short-termist capitalist model that has proven wholly inadequate to the climate challenge.

Lacking in coordination or leadership, the climate finance effort resembles a space programme without NASA.

This is why Aviva Investors, as part of a coalition of 38 institutions from across the industry, is calling for reform of the global financial architecture ahead of the G20 summit and COP26.

Our central recommendation is that the Organisation for Economic Cooperation and Development (OECD) assumes a new role as convenor and host of an International Platform for Climate Finance (IPCF).

This facility would provide technical support to countries to help them deliver on climate commitments, advise large private financial institutions on how to scale up their own climate contributions, and develop an overview of international financing needs and opportunities.

In this way, a retooled OECD could coordinate action to drive a smooth and just transition for the global economy, acting as a NASA for the climate moonshot.

With a coherent finance plan, we can ensure governments, multilateral institutions, companies and individuals work in harmony towards our shared goals. But to do all this properly, before the planet burns, we must be bold.

 

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