Investment community has a key role in driving COP26 agenda

Saker Nusseibeh November 02, 2021 06:00

Next month’s COP26 appears to be stuttering towards the start line.

Sponsors have criticised the ‘mismanaged’ and ‘very last minute’ organisation of the event, but more concerning is the lack of commitment from world leaders.

Late confirmation of attendance from India's Prime Minister Narendra Modi and Australia’s Prime Minister has been followed by news that both Presidents Putin and Xi Jinping, leaders of two of the world’s major emitters of greenhouse gases, are set to miss the event.

The trajectory for Chinese emissions means China alone would use more than 50% of the remaining Paris-compliant global carbon budget, so the possibility they won’t show up is concerning.

Elsewhere, while President Biden reinstated the US as a signatory of the Paris Accord, his large-scale plans for climate action and decarbonisation face significant hurdles. For example, US Democratic Senator Joe Manchin is opposing the clean energy provision within the spending bill. If he continues to do so, it could both impact America’s ability to reach its net zero targets and global progress.

On top of this, it is no secret that Nationally Determined Contributions (NDCs) – individual country plans to cut emissions by 2030 – are likely to fall short of where they ought to be.

This fractured backdrop is troubling at a time when we need combined political will at COP26 to change our trajectory on the climate crisis.

Across business, the mismatch between ambitious targets and concrete plans is pronounced. In 2020, the number of companies with a net-zero commitment tripled. However, data from the Climate Action 100+ benchmark shows that despite 52% of 159 of the world’s biggest emitting companies setting a net-zero goal, only 20% have short and medium-term targets covering most of their emissions. Only 7% have targets aligned to 1.5°C.

A united and strong COP26 needs to encourage business to put in place short, medium- and long-term targets aligned with the Paris Accords, underpinned by a comprehensive strategy. In addition, a requirement for TCFD reporting across more sectors and countries would be a significant positive outcome.

As investors, we can then swing into action to support execution of these plans. Or, if necessary, we can use our influence and powers to require the establishment of such plans where companies are slow or reluctant to play their part.

Sitting across all economic activity as we do, we are in a unique position to create wealth sustainably in a way that is both good for the end investor and for society.

We can invest in sustainable business - those that will have an impact on our net zero goal.

We can also use our role as stewards of investments to drive change needed to secure our planet’s future, by supporting companies in their transition to a sustainable footing.

In this regard, I see three principal priorities for our industry.

First, as business embarks on rapid decarbonisation, the investment industry must make a quantum leap in its willingness to work together and the lengths we are prepared to go to. This is something we have begun to see via shareholder resolutions at fossil fuel companies.

We also need to provide the capital to accelerate take up of renewables, green steel, and carbon capture and storage.

Secondly, we need to use our influence with companies. Through our advocacy, we must ensure business stops fouling our oceans, rivers and land. That it stops cutting down forests, destroying wildlife and removing nutrients from the soil faster than they can be replaced.

Thirdly, we need to use our position to ensure business plays its part in building social cohesion, through fairness in remuneration, protecting human rights and providing equity and equality of opportunity.

By investing in sustainable businesses or, through stewardship, supporting their transition to becoming sustainable, we can and should play a major role in driving the COP26 agenda over the coming years.
Investors, businesses, and policymakers all have an important role to play, and success is contingent on us stepping up and working together.

Not only is that good for society and our planet, but it is not, importantly for our clients, incompatible with delivering returns.

-- Contact us at [email protected]

Saker Nusseibeh

Chief Executive Officer, Hermes Investment Management