At the COP26 climate change event, countries strike deals that can help banks themselves and corporate clients move towards a more sustainable future
GLASGOW – Landmark Deforestation and Methane Reduction Agreements Signed at United Nations Conference of the Parties Climate Change Meeting (COP26) will help banks and asset managers in their efforts to achieve net zero . The COP26 meeting is taking place through November 12 in Glasgow, Scotland.
“Land use is the next frontier in tackling climate change,” said Daisy Streatfield, program director at the Institutional Investors Group on Climate Change (IIGCC). “We probably haven’t paid enough attention to non-energy emissions [to date]. “
More than 100 countries, including the United States, China and the European Union, have signed the Glasgow Leaders’ Declaration on Forests and Land Use and 95 have signed the Global Methane pledge. The Anti-Deforestation Commitment commits countries with 86% of the world’s forests to work “collectively to stop and reverse forest loss and land degradation by 2030”. While the commitment on methane, which covers 50% of global methane emissions and has been suggested first by the EU and the US in September, urges signatories to reduce methane emissions by 30% from their 2020 levels by 2030. After carbon dioxide, methane is the main contributor to global alert.
It is widely hoped that these government agreements will make it easier for asset managers and banks to question companies about their own methane reduction and land use plans.
Streatfield’s comments came during a roundtable hosted by Swiss banking group Lombard Odier. The IIGCC produced the framework for the Paris Aligned Investment Initiative which has 350 members from 22 countries, with a total of 49 trillion euros under management.
Skeptical about the implementation
Environmental groups have expressed skepticism about the likelihood that some countries will meet commitments made under the Glasgow leaders’ deal.
Rebeca Coriat, head of stewardship at Lombard Odier Investment Managers, said satellites meant it would be possible to know if countries and companies were meeting their commitments to reverse deforestation. Along with the deforestation deal, CEOs of 30 financial institutions, including Fidelity International, Aviva, Legal & General, Federated Hermes, Skandia and the Church of England Pension Fund announced they would work to eliminate the risks deforestation linked to agricultural commodities in their investment and credit portfolios by 2025.
“Protecting our forests and their biodiversity is fundamental to the fight against climate change,” said Amanda Blanc, CEO of Aviva, in a statement accompanying the announcement. “Financial institutions have a central role, using our influence over the companies we invest in to encourage and secure best practices. Together, we can reduce risks to the planet and financial markets, and capitalize on the opportunities that arise from more sustainable investments. The institutions involved in the commodities commitment collectively have $ 8.7 trillion in assets under management.
E3G, a climate change think tank, hosted the Global Methane Pledge; However, Maria Pastukhova, energy expert at E3G, said the hard work involved in creating a transparent governance and oversight system now needs to be done.
“[The pledge] is a long-awaited step forward, ”said Pastukhova. “[But] the real work begins now. Before COP27, the commitment must involve the three main emitters – China, Russia and India -, supported by transparent governance and monitoring. “
The growth in funds in environmental, social and corporate governance (ESG) funds was such that in September, the Bank for International Settlements added his name to those who warn of the risk of a green bubble. ESG assets grew by almost a third to reach $ 35 trillion between 2016 and 2020 and now represent a third of all assets under professional management.
Regulation needs to be better aligned to move in the right direction and achieve a reduction in carbon emissions, Streatfield explained. “It’s not just about ‘brilliant green’, but also about investing in the transition. “
Maxime Perrin, responsible for sustainable investment at Lombard Odier, agrees. “Investing in a low-carbon business is not the same as investing in low-carbon. “
During the recent COP26 Finance day, the financial services industry hoped governments would agree to key steps in their transition to net zero. To date, the UK is the only G20 country to say it will require companies to report on climate exposures in accordance with the Taskforce for Climate-related Financial Disclosures.
Rishi Sunak, Britain’s Chancellor of the Exchequer, has announced that the country will become the world’s first net zero financial center. Net zero transition plans will be made mandatory for all UK financial institutions and businesses, Sunak explained.
The plan was “a bold move,” said Ed Matthew, director of campaigns at E3G. “Mandatory net zero transition plans are a key pillar of the financial architecture needed to mobilize the trillions [of dollars] necessary to get on the right track to achieve net zero and achieve a green economic recovery. “
Financial institutions have also called for an international alignment of climate reporting standards. Erik Thedéen, Managing Director of Swedish regulator Finansinspektionen, is leading work on a standard for the International Organization of Securities Commissions (IOSCO).
“We are close to a global standard on how companies should report their climate risks and climate work,” Thedéen said in a statement. “This will dramatically increase the possibilities of the financial sector to properly assess climate risks, thereby helping to move capital from harmful activities to those that contribute to the climate transition.”