Joined-up climate policies seen as vital to catalyse a “generational shift” towards climate investments, technologies and solutions this decade.
Asset owners must use all available levers to phase out fossil fuels, while also rapidly increasing investment in climate solutions to achieve net zero ambitions, according to Laura Hillis, Director, Climate & Environment, Church of England Pensions Board (CoEPB).
Speaking at the Climate Investment Summit, hosted by the London Stock Exchange as part of London Climate Action Week, she stressed that achieving this end goal is only possible if the necessary policy incentives are established.
“It is often overlooked how crucial it is to have coherent policy incentives,” said Hillis, adding that while setting targets and implementing effective renewable energy policies is important, it is equally vital to consider how support for fossil fuel developments aligns with these efforts.
She stressed that the phasing out of fossil fuels and the scaling up of climate solutions are two objectives that are “closely intertwined”, not only from an economic standpoint but also in terms of policy signals.
Hillis pointed to academic research to argue that a joined-up policy framework, which simultaneously removes fossil fuels subsidies and incentivises renewable energy development, is “essential for building trust and minimising market-level risks”, she said.
“Ensuring the proper alignment and coherence of policy settings is of utmost importance.”
The unwillingness of oil and gas majors, including BP, Shell and Total among others, to align with climate goals recently saw them excluded from investment portfolios by the CoEPB and Church Commissioners.
In a statement released last week, the Church Commissioners said it will only remain invested in an oil and gas firm if it can demonstrate genuine alignment with a 1.5°C pathway by the end of 2023.
“The decision to disinvest was not taken lightly,” said Alan Smith, First Church Estates Commissioner in a statement published last week.
“Soberingly, the energy majors have not listened to significant voices in the societies and markets they serve and are not moving quickly enough on the transition. If any of these energy companies come into alignment with our criteria in the future, we would reconsider our position.”
According to data from the International Energy Association (IEA), preliminary estimates for 2022 point to global fossil fuel subsidies doubling from the previous year to an all-time high of US$1 trillion. In 2021, rebounding fossil fuel prices had already lifted fossil fuel consumption subsidies to US$532 billion, roughly 20% above 2019’s pre-pandemic levels.
Research by the UK Climate Change Committee (CCC) found that the UK’s policy response to the energy crisis has not matched the response of the US and the EU in scale or ambition.
“We have backtracked on fossil fuel commitments, with the consenting of a new coal mine and support for new UK oil and gas production – despite the strong wording of the Glasgow Climate Pact,” the report said, adding that the UK has been slow to react to the US Inflation Reduction Act and the EU’s proposed Green Deal Industrial Plan, which are now a strong pull for green investment away from the UK.
“It is critical that the UK re-establishes its climate leadership with a clearer strategy to develop Net Zero industries and technologies in the UK and capture the economic benefits of Net Zero, with actions that create demand-pull for the critical technologies that will shape the UK’s progress over the next decade,” the report added.
Also speaking at the event, John Mulligan, Director, Market Relations and Climate Change Lead, World Gold Council, said that the investment community must move away from “short-termism” with regard to how it measures value.
“How do we value loss?” he said, adding that such concepts are yet to be embedded into investors’ decision making.
He noted that when it comes to capital allocation and investment policies, particularly in terms of assessing firms’ progress on decarbonisation, investors talk too often in “abstract terms”, discussing commitments and possible actions, rather than effectively translating these into action in the real economy.
“We need to move towards action that translates into the lived experience of climate,” he said. “We need to consider a global perspective.
“Often, we’re talking from here, from the London Stock Exchange, which has a very specific perspective […] but that perspective changes when you take that discussion and bring it into a completely different economy and a different culture.”
According to Mulligan, policymakers and investors must start to “link up” various perspectives on climate, particularly those in the Global South, or risk the “generational shift” required to achieve net zero only partially materialising.
“How do we incentivise those governments in the Global South where a just transition equates to them defending the exploitation of fossil fuels? How do we incentivise a shift in policy in countries where they may see the problem as not primarily being theirs?” asked Mulligan, adding that such questions must sit at the heart of the COP28 agenda.
Earlier this month, limited progress was made on the agenda for COP28 at the Bonn Climate Conference, partly due to differences in the priorities of developed and developing countries.
“[COP28] about nations coming together to honour their commitments, but also the language needs to be coherent and consistent,” he said.
“We need to have shared objectives.”
COP28 in Dubai is scheduled to take place between 30 November to 12 December.