Commentary

ICYMI, A Hard Rain is Already Falling

This week, it wasn’t only governments giving mixed signals on climate policy.

As a major financial centre was deluged under record rainfall this week, there were signs the climate crisis is increasingly driving the business and investment agenda, but also indicators of the need to push the pedal to the metal, so to speak.

Almost half of 800 Asia-Pacific business leaders claimed to be focusing more on sustainability post-pandemic, with 90% factoring ESG into M&A and investment decisions, and 68% embedding UN SDGs into strategic planning. One of the US’s largest public pensions schemes, CalSTRS, unveiled its portfolio decarbonisation strategy, while Swiss Re, the world’s largest reinsurer, invested in long-term carbon removal technology.

Investors further demonstrated their appetite for climate-positive investments, almost doubling 2020 purchases of green bonds in the first six months of this year. The Climate Bonds Initiative said total green, social and sustainability bond volumes reached US$496 billion in H1 2021, with new sustainability-linked bonds attracting demand. Interest in investments that oblige firms to meet sustainability KPIs could increase further, with NNIP noting just 53% of corporate bond issuers are aligned with the 2°C climate change scenario.

But the European Commission found many holes in banks’ ESG risk strategies, warning both supervisors and regulated institutions to up their game and set comprehensive policies and targets or face compulsory standards. While some feel the report’s recommendations were inadequate, it puts more pressure on banks and other institutions preparing to unveil new net-zero commitments and business strategies in time for COP26.

No one is under more pressure ahead of the Glasgow summit than the UK government, which as host has many gaps to fill in its net-zero plans, including its expectations of investors and corporates under proposed new sustainability disclosure requirements.

With green gilts, an HM Treasury report and consultations across numerous departments all imminent, the wheels of Whitehall are clearly in motion, even if the message still needs work, as the chief executive of the UK’s Committee on Climate Change noted this week. Nor can the Scottish government be complacent, its sustainability credentials questioned by a certain Swedish activist, despite a new power-sharing deal between nationalists and greens.

Increased climate-related disclosure requirements for corporates are on their way in both Japan and the US, but investors are looking for more leadership from governments. In our recent COP26 vox pop, the clear message was for more stringent and coordinated measures to drive action and investment, from carbon pricing to tougher sanctions and targets for Paris-aligned investment to taxonomy harmonisation.

That drumbeat in the background is not just the calls for action from investors, nor the sound of hard rain on New York taxi roofs. It also comes from the increasing frequency of severe weather events, as reported this week by the World Meteorological Organisation, and the ever louder warnings of their impact on soil, trees and communities in less-developed economies.

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