Pensions and Investments Crucial to Tackling Climate Challenge – Lord Stern

NatWest climate advisor calls for more action from sector, as JP Morgan commits to Paris targets.

Lord Stern, Chair of the Grantham Institute on Climate Change and the Environment, has said pension provision and investment services must play a crucial role in the efforts of the finance sector to address the causes of climate change.

“Young people are asking themselves the moral question: will my pension programme and the investments involved be going in directions and to activities which are going to make life liveable for myself and my children? Of fundamental importance is how people’s pensions and finances feed through into investments and real activities in the world,” he said, speaking in his capacity as independent climate change advisor to NatWest Group, the UK financial services provider.

Stern, author of UK government’s Stern Review on the Economics of Climate Change, welcomed recent efforts by financial institutions and governments to increase their efforts to reducing greenhouse gas emissions, citing the European Commission’s green recovery budget and China’s recent commitment to net zero emissions by 2060.

“The world is moving. It’s not moving fast enough. Getting out ahead will be good for the planet and good for business,” said Stern, speaking as part of virtual joint presentation with Alison Rose, CEO of NatWest Group, at the Sibos 2020 banking conference, yesterday.

Stern said financial institutions can be “crucial leaders in this whole story”, suggesting the private sector is ahead of government in some respects, albeit acknowledging differences between leaders and laggards.

“The investments of the 19th and 20th centuries are already doing very badly as we reorientate ourselves in the 21st century,” he said “Responsible investment already performs by the conventional criteria. Irresponsible investment is very risky. Increasingly, firms and financial institutions are leading, recognising that the investments of the 21st century are different from those of the 19th and 20th and that they will be profitable.”

Rose highlighted actions being taken by NatWest Group as part of its plan to make its direct operations climate positive by 2025 and to at least half the climate impact of its financing activity by the end of the decade. The bank has committed to stop lending and underwriting to major oil and gas producers, and companies involved in coal-related activity, unless they have a credible transition plan, aligned with the 2015 Paris Agreement, in place by 2021, with a full phase out from coal by 2030.

NatWest is also reducing the carbon intensity of discretionary funds and portfolios in its wealth and asset management businesses by 25% by 2022 and 50% by the end of 2030. “We know that the impact of an organisation’s supply chain on climate is on average five and half times greater than of the organisation itself. Our response has been to introduce a new supplier charter, which sets out our expectations for the way those we partner with might contribute to a low carbon economy,” added Rose.

Stern concluded that action over the next ten years would be crucial to achieving net zero emissions by 2050. “Every household, every firm, every financial institution should think about how they get to net zero in the next 30 years. This decade is absolutely critical. We have to cut emissions by something like 50% in this decade. The good news is that we can do it.”

Separately, JP Morgan, the largest US banking group, announced it is adopting a financing commitment aligned to the goals of the Paris Agreement on emissions reduction. As part of its strategy, the bank says it will help clients “navigate the challenges and capitalize on the long-term economic and environmental benefits of transitioning to a low-carbon world”.

JPMorgan Chase will establish intermediate emission targets for 2030 for its financing portfolio and plans to begin communicating about its efforts in 2021, focusing on the oil and gas, electric power and automotive manufacturing sectors and setting targets on a sector-by-sector basis.

The bank plans to share more details in its next climate report, due spring 2021, which will be informed by the recommendations of the Task Force on Climate-related Financial Disclosures. It also announced the launch of a Center for Carbon Transition to provide corporate and investment banking and commercial banking clients with centralised access to sustainability-focused financing, research and advisory solutions.

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