Insights

COP26: FINANCE INDUSTRY STEPS UP TO ACCELERATE CLIMATE ACTION

By
Adrian Howard
on
November 8, 2021

COP26 has emphasised the importance of limiting global warming to 1.5°C. The Glasgow Financial Alliance for Net Zero (GFANZ), of which St. James's Place is a member, brings together the financial sector to accelerate the transition to a net-zero economy. To succeed in tackling climate change, companies and governments must be more aligned than ever.

Rob Gardner, Director of Investments at St. James's Place, gives his thoughts on the first week of COP26 and in particular the role of the finance industry in the global transition to Net Zero.


I was at the COP26 UN Climate Change Conference this week, and it has been exciting to see the world’s decision-makers gathering to act on global warming.

COP21, held in Paris in 2015, was about ‘why’ we are addressing climate change. COP26, here in Glasgow, is about ‘how’. In 2015 it was predicted that, if we did nothing, the global temperature would increase around 5°C above pre-industrial levels. We have already reduced that dramatically, and are on track for around 3°C (1).

But that is still too high. COP26 has focused decision-makers’ minds on achieving the lower target set in the Paris Agreement of 1.5°C (2).

The science has hardened over the years to show that climate change is happening and, if we don’t stop it, there will be more impacts such as extreme weather events. This is already leading to widespread human suffering and billions of dollars a year in financial losses.

Keeping 1.5° alive

To hit this target, we need: awareness of the issues, action, acceleration and global alignment where everyone strives for the same thing.

Since 2015, the global community have increased awareness and understanding, and accelerated their actions.

At St. James's Place, we have played our part by signing up to the Task Force on Climate-related Financial Disclosures (TCFD) reporting in 2019, which was established to provide a framework for firms to follow when disclosing their climate-related risks.

Then, in 2020, we joined the Net-Zero Asset Owners Alliance. This is part of the Glasgow Financial Alliance for Net Zero (GFANZ), whose members commit to accelerating the Paris Agreement and transitioning to net-zero carbon emissions by 2050.

At COP26, Mark Carney, UN Special Envoy on Climate Action and Finance, announced that GFANZ members are now responsible for a staggering $130 trillion, which means 40% of the world’s assets are now funding the journey to decarbonisation.

David Attenborough said the generation to come will consider whether global warming stopped rising because of commitments made at this conference. “There’s every reason to believe that the answer can be yes,” he said. “If, working apart, we are forces powerful enough to destabilise our planet, surely working together, we are powerful enough to save it.”

Politicians need to set the direction of carbon neutrality. But the finance industry needs to respond and start investing in the businesses and technologies that drive that change. Carney’s announcement on GFANZ shows we are doing that.

Companies must respond

We know how to limit global warming. Much of the technology we need to close the gap exists today. Some of the technologies displayed at COP26 were fascinating, including electric planes and hydrogen-powered construction machinery. The finance industry needs to keep backing and scaling these innovations.

We also need to set our own targets. For example, St. James's Place is operationally carbon neutral already and working towards that goal with our partners and suppliers.

Other businesses are accelerating their response, too. For example, Microsoft has pledged to be carbon negative by 2030.

Social justice is essential

In Glasgow, we also saw a welcome emphasis on social justice and learned more about how climate change impacts people in developing regions.

It’s unfair to ask developing countries such as India, who have not benefited from fossil-fuel energy in the same way as developed nations, to move as quickly as wealthier countries. We must help them make that shift affordable.

Nature is our ally

COP26 has emphasised the need for nature-based solutions. Our planet’s ecosystem is incredibly valuable. But we have lost sight of that and brutally degraded nature, such as our peatlands, which trap carbon, and hedgerows and forests, which provide enormous biodiversity.

We all need to protect and value nature properly.

Globally, we destroy a football-field-sized area of rainforest every minute, according to satellite data. If we aligned our short and long-term incentives to value nature properly, this would stop.

World leaders at the conference promised to end deforestation by 2030. Pressure group Make My Money Matter called for financial institutions to fully integrate halting and reversing deforestation into their net-zero commitments. They are right to call for that.

The sooner we can align with nature, the better, and GFANZ will help provide the money needed to make the transition to net zero.

I’m optimistic

To hit the 1.5° target, we need a 7.6% annual reduction in carbon emissions (3), while also delivering global prosperity and economic growth. It’s huge, but doable. The biggest challenge is the mindset shift. Companies and governments need to be more aligned and collaborative than ever.

When COP26 finishes, we will have a big job to make all the commitments happen. But I’m excited to have been here and will look back on it as a seminal moment, like the Berlin Wall coming down. We all need to act: as consumers, as citizens, as businesses and investors. The one thing that COVID-19 has taught us is that when we work together we can achieve great things.

Our world is changing faster than anyone predicted. We believe responsible investing has a huge role to play in shaping a better world and building a sustainable future.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.


Sources:

1 Climate change 2021: the physical science basis, Intergovernmental Panel on Climate Change, August 2021

2 Around 120 leaders gather at COP26 in Glasgow for ‘last, best chance’ to keep 1.5 alive, UN Climate Change Conference, November 2021

3 Emissions gap report 2019, UN Environment Programme, November 2019