The COP26 event in Glasgow is primarily one of vital global climate diplomacy. The essential outcome the UK presidency hopes to deliver would see more countries declaring ‘nationally determined contributions’ for achieving net-zero emissions, rich nations making good on their pledge to provide $100bn (£72.7bn) a year for climate finance, and action to protect communities and natural habitats. For the UK, this is a prestigious event, and the act of hosting COP26 has concentrated minds domestically and accelerated a programme of climate-related public policy.
The UK was the birthplace of the industrial revolution, which now acts as the landmark moment from which we measure global warming activity. It means the country was one of the earliest to reach peak emissions and begin the process of decarbonisation – yet other countries rightly expect the opportunity to experience the development from which the UK has benefitted. The UK knows it must now show it is doing its bit and this is why we have seen a raft of measures from government, starting with the prime minister’s ten point plan for a Green Industrial Revolution, to make the country a global leader in green technologies.
This was followed by the introduction of the Task Force on Climate-related Financial Disclosures (TCFD) aligned reporting, Sustainability Disclosure Requirements (SDR) to create an integrated framework for decision-useful disclosures on sustainability across the economy, the development of a UK Green Taxonomy to provide a shared understanding of which economic activities actually count as green, and the UK’s first Green Gilt – launched with the largest debut transaction size for any sovereign at £10bn.
The investment sector has been supporting the UK Government on each of these initiatives. In 2020, the HM Treasury Asset Management Taskforce published Investing with Purpose, a report produced by the Investment Association. It sets out in detail, with a number of recommendations, how stewardship and responsible investment should be strengthened.
The UK investment management industry is committed to playing its instrumental role in the transition to a net-zero economy. Investment managers with £6trn of assets under management in the UK have all made a net zero commitment. Globally, the Net Zero Asset Managers initiative, of which the Investment Association is a supporting partner, has 128 signatories with $43trn in assets under management.
Our role is to understand the long-term risks and opportunities associated with climate change, and a clear direction of travel is essential for us to do so. In return, our industry can be instrumental in financing these urgent solutions.
Mobilising private capital
I will be in Glasgow with industry leaders and experts. At the Green Horizon Summit, we will convene a group with voices from the government of a developing country, the UK development finance sector, and the global investment management industry to consider how we can mobilise private capital to support climate action in emerging markets – a key focus of the UK’s COP26 presidency.
Emerging economies may suffer the worst effects of climate change, with temperature rises, drought and rising sea levels making parts of the world uninhabitable or inhospitable. Developed nations have an obligation not only to help avert this threat but to make the transition to net zero as easy as possible for nations that have most to lose and fewer resources with which to fight climate change. Private finance must play its part.
“If the world’s governments show the leadership we need, they will find private finance by their side.”
In addition, at COP26, we want to see the world’s governments deliver on their goals. First and foremost, this means global action to reduce greenhouse gas emissions and limit the global temperature increase, and developed countries mobilising at least $100bn in climate finance per year.
While they are gathered together, we need governments to agree on the next level of international cooperation. We would like to see support for the IFRS Foundation’s International Sustainability Standards Board to develop sustainability reporting standards. Sustainability reporting is broad and far-reaching, and we need to develop a path to global standards of reporting to ensure we have a coordinated response to tackling climate change. It is also important that there is increased cooperation between national regulators to endorse and implement these standards.
Mandatory reporting
We also ask national regulators to commit to implementing mandatory economy-wide TCFD reporting. As mentioned, the UK government plans to introduce new SDRs, which will represent additional disclosure requirements to those required by the TCFD framework and will also be an ‘economy-wide’ regime, covering corporates, financial services firms and pension schemes.
The UK government is also working with the Financial Conduct Authority to introduce a sustainable investment label covering retail investments, using information provided through the SDR. This will help investors to price these policy interventions into the investment process and support investee companies to manage any changes to their business model through the capital we provide. Similar disclosure regimes will be essential in every major economy if we are to properly understand the climate impact of our investments.
Finally – and very crucially – governments must set out sector-specific pathways to meet the Paris Agreement goals and prioritise providing further detail to reduce the risk of stranded assets. Investment managers require clear policy direction from global policymakers to implement measures effectively.
We are looking to the UK government to work with our industry to identify specific areas and projects that align with the goal of net-zero transition and where additional investment is needed. This could focus on sectors, nascent technologies or underdeveloped overseas markets and should consider appropriate mechanisms to crowd in private finance.
COP26 will host a series of such important discussions and debates – but, ultimately, what matters most is not so much what happens during the two weeks in Glasgow but that long-term and reliable policy direction is chosen so every industry, including investment management, can make a meaningful contribution to the transition. If the world’s governments show the leadership we need, they will find private finance by their side.
COP26 ‘must-do’ list
What are the COP26 goals the world’s governments must strive to deliver?
- -Global actions to reduce greenhouse gas emissions and limit the global temperature increase.
- -Developed countries to mobilise at least $100bn in climate finance per year.
- -Protection for the diversity of our natural environment.
- -Leadership from governments, regulators, business and civil society.
Chris Cummings is chief executive of the Investment Association
