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Take Five: Lessons Learned

A selection of this week’s major stories impacting ESG investors, in five easy pieces. 

Science was back on the curriculum at COP28, followed by cautious optimism about the response to the Global Stocktake.

Siding with science – The week in Dubai started with a row about a row. COP28 President Sultan Al Jaber found it necessary to emphasise his commitment to science, after an ill-tempered webinar circulated in which he said there was no scientific evidence to suggest 1.5°C would be reached by the phase-out of fossil fuels. He did this while sitting next to Professor Jim Skea, Chair of the Intergovernmental Panel on Climate Change, effectively the world’s senior climate scientist. Al Jaber may have been miffed that a minor tiff had drawn attention away from the raft of announcements over the weekend, many under the banner of the Global Decarbonisation Accelerator, which tackle GHG emissions in a number of new ways, including cracking down on methane emissions from the oil and gas sector, and cooling systems. More effective in wresting back the narrative than brandishing his engineering degree was the release of the draft response to the Global Stocktake, and various options for wording of key clauses, including fossil fuel phase-down, which ranged from the status quo to the potentially transformational.

Adapt and thrive – The draft Global Stocktake text was notable also for its emphasis on the role of private finance and action on adaptation. Alongside the Global Stocktake, the outcome of intensive work on an operational framework for the Global Goal on Adaptation is one of the key areas of focus for COP28, with the potential to accelerate efforts to protect vulnerable countries against the physical risks of climate change – the need for which was underlined by the UN Environment Programme’s Adaptation Gap Report 2023, titled Underfinanced, Underprepared. On Tuesday, UN Climate Change Executive Secretary Simon Stiell called for a broader pool of contributors to adaptation finance across public and private finance. “Countries want grants, not loans. Their foresight and initiatives to adapt to climate change must not be punished with crushing debt,” he said.

More or less – Finance Day at COP28 saw the launch of more declarations, coalitions and taskforces than there are yachts in the nearby Dubai Harbour Marina (there are new plans to turn those green too). These included not one but two emerging markets capacity-building initiatives, a net zero export credit agencies alliance; and a taskforce on risk mitigation and credit enhancement. For sheer headline-grabbing power, it’s hard to out-do the unveiling of GFANZ and the ISSB in Glasgow two years ago, but anniversaries do at least offer opportunities to assess the toddlers’ progress (see how they’ve grown!). For all the widening range of activities for both initiatives – the former focused largely on transition frameworks; the latter mulling extensions, possibly into nature – the mixed pace of change at individual financial institutions remains a concern.

Under the radar – One sub-sector GFANZ grouping that has kept a relatively low profile at COP28 has been the Net Zero Asset Managers initiative, which boasts 315 asset managers, collectively responsible for more than US$57 trillion in AUM. According to an update, 244 signatories have now disclosed their targets and 193 have reported progress, in line with requirement to disclose targets within one year of membership. The initiative rightly points out that there is only so much progress they can make in allocating toward net zero goals without policy action, noting signatories are “actively engaged in policy advocacy, pushing for a supportive policy environment”. However, UK investment consultancy Redington’s fourth annual Sustainable Investment Survey finds “evidence of climate action in practice is still considerably lagging” across the sector. While 74% of the 127 managers surveyed monitor emissions-based metrics for their portfolios, for example, only 38% monitor some sort of portfolio alignment metric. This is “arguably not good enough”, said Redington when pension scheme clients need to record portfolio alignment metrics in their TCFD reports for the first time this year.

Spoilt for choice – While much of the buzz on Finance Day was around the mobilisation of the public finance sector – rightly, given its potentially catalytic impact on climate finance to emerging markets – institutional investors from the private sector were barely less active. They were also very consistent in their message to policy makers, reiterating the primacy of the four Cs. Faith Ward, Chief Responsible Investment Officer at UK-based local government pension scheme pool Brunel Pension Partnership, chose the example of renewable energy to highlight the importance of governments playing a facilitating role in the net zero transition, attracting and rewarding investment. But she could just as well have chosen electric vehicles, given the fairly disastrous impact on new EV sales from UK PM Rishi Sunak’s recent u-turn on banning ICE cars.



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