Commentary

ICYMI, Guterres is Setting a High Bar for Glasgow

UN Secretary General calls for 45% emissions cuts by 2030.

World leaders meeting next week in New York for the 76th United Nations General Assembly have been presented with compelling evidence for putting climate change at the top of their agendas. As if they needed any convincing after August’s report by the Intergovernmental Panel on Climate Change.

The ‘United in Science’ report compiled by the World Meteorological Organization noted that the pandemic had done little to impact climate change and found that emissions from industry were at the same level or higher in the first half of 2021 compared with the same period in 2019.

UN Secretary General António Guterres said governments need to agree to collective emissions cuts of 45% by 2030 compared with 2010 levels for COP26 to fulfil its role as a “turning point” in the fight against climate change, warning of the “catastrophic” consequences of failure.

For those governments putting the finishing touches to their nationally determined contributions, further food for thought was provided by Climate Action Tracker, which identified The Gambia as the only country currently on a pathway compatible with limiting climate change to 1.5 degrees Celsius. Of six ‘almost sufficient’ countries, only one – the UK – was a major economy.

With ClientEarth recently finding many loopholes and weaknesses in existing climate change laws (including the UK’s), it is perhaps unsurprising that previously shunned measures – such as large-scale carbon removal projects – are being more actively considered by policymakers. Nor is it surprising that younger generations are following the evidence of their own experience on the seriousness of the crisis.

While hoping for detailed commitments from governments in Glasgow, investors are also pushing for clarity and coordination on carbon pricing, in the hope that this will provide greater transparency on the climate risks and transition plans of investee companies.

Greater transparency is sorely needed. A new Carbon Tracker report found that 70% of the world’s heaviest emitting companies – from sectors including steel, cement and chemicals – failed to adequately disclose the effects of climate risk in their 2020 financial statements; while a higher percentage of their auditors “showed no evidence of assessing climate risk”.

Investors are also concerned that the spate of M&A deals taking firms private may further reduce oversight of climate risks. These concerns might be overplayed as private equity firms compete to show their sustainability credentials, but investors’ focus on climate disclosures is only intensifying, if trends in US proxy voting are any guide.

Increasingly, larger asset owners are realising that their own governance models and operating frameworks are not necessarily up to the multiple challenges of assessing climate and other sustainability risks, especially as they look to integrate ESG factors across all asset classes.

Whether enacting it ourselves or encouraging others, change is rarely comfortable and sometimes it takes perspective to see what can be achieved. Another report this week noted that three quarters of planned coal projects had been scrapped since the Paris Agreement was signed.

The battle isn’t over of course, as COP26 President-Designate Alok Sharma noted yesterday. But with China investing in thorium-fuelled nuclear reactors as part of its efforts to eliminate coal, there is at least evidence for optimism too.

 

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