Sooner or later, governments must catch up with investors, consumers and voters.
At the time of writing, there are still many hurdles to be overcome by negotiators seeking to finalise the latest draft agreement before COP26 is due to end at 18:00 GMT tonight. Take your pick from climate finance (tied closely to ‘loss and damage’ compensation), coal phase-outs, fossil fuel subsidies, carbon markets and increasing the frequency and granularity of the processes that monitor countries’ decarbonisation commitments.
UN climate summits have a history of running over time, and the spirits of many will have been buoyed by the apparent willingness of China and the US to put aside their differences to ‘keep 1.5°C alive’, but that’s still a monumental last-gasp agenda.
Glasgow was always going to be harder than Paris. As one veteran told me, “Paris celebrated a promise”, while Glasgow needs to put in place the mechanisms to realise that promise. The Herculean nature of the task is made harder by the fact the times have changed, too. The world might be heating up, but relationships have cooled and trust is in short supply.
The overall report card for COP26 is equivocal. Building on last week’s initiatives, many adapting the infrastructure of the finance sector to factor climate into every decision, this week saw progress on transport, resilience and adaption. But it also witnessed evidence of negative lobbying, weaker deals on oil and gas, and credible calculations that existing pledges and policies still put us on track for frightening levels of warming. Few, young or old, will have trouble heeding former US President Barack Obama’s encouragement to “stay angry”.
The energy created by such a massive summit can quickly dissipate, but there is little doubt COP26 generated meaningful commitments, forcing governments, companies and investors to put climate front and centre of their strategies. This gives hope that Glasgow’s momentum is unstoppable.
It should have happened sooner, but the infrastructure is taking shape to ensure investors and financiers allocate capital to drive carbon neutrality. Regulators globally are taking action, from the UK Financial Conduct Authority’s new ESG strategy to the US Securities and Exchange Commission’s revised view on shareholder proposals to recent initiatives in Hong Kong, Singapore and the ASEAN region to embed sustainability and finance.
These stand alongside recent multi-jurisdictional initiatives to improve green fund labelling, standardise sustainability reporting, broaden carbon accounting, establish science-based targets toward net zero for private equity firms, and develop voting guidance for asset owners looking to align securities lending with broader ESG objectives.
They may not be perfect or even sufficient, but these steps are indicative of a clear shift in priorities and mindset. As highlighted in ESG Investor’s recent webinar, ‘Toward a Just Transition’, migrating to new sustainable business models will be a bumpy ride for investors, companies and their stakeholders. Ask General Electric or Johnson Matthey. But it is possible to make the case that the private sector has overtaken governments since Paris in accepting and acting on the need for change.
The pace of change remains uneven on many fronts. Two thirds of global asset owners recently said they plan to introduce decarbonisation targets within the next three years. Meanwhile the vanguard pushes on; asset owners which have already excluded oil and gas are increasing their expectations of asset managers. Whatever this weekend brings, pressure from investors, customers and voters will not relent.