As the dust begins to settle on COP 26, our immediate take is that the can has been (un) successfully kicked over the Glasgow gate and is now bouncing along the dusty path to COP 27 in Cairo. The finance industry allegedly stepped up to the plate with Mark Carney leading the talking but subsequently failing on the walking part. As the Glasgow Financial Alliance for Net Zero (GFANZ) pledged over $130 trillion of private capital commitment to support the transformation of the global economy for net-zero, Carney’s firm Brookfield was outed as a final bidder for a stake in Saudi Aramco’s natural gas pipeline, an inconvenient truth as well as inconvenient timing. GFANZ made lofty headline-stealing commitments, and many believed that in the run-up to COP, some frameworks might be announced as to the how? But for now, we have to be content with the fact the financial sector is waking up.
In the final minutes of extra time, China and India scored a win for them and a massive loss for the planet with a diluted version of the coal pledge. According to Boris Johnson, ‘phasing down’ to ‘phasing out coal’ made little difference and was not a change to the intention (so why the language change?). Meanwhile, within hours of Biden landing home, the White House called Opec to push up production to stave off inflationary pressures. Rising oil prices have handed the American President a dilemma at a politically precarious time.
Other COP headlines include a continued failure on behalf of rich countries to provide climate finance for those poorer countries that will be disproportionality affected by global warming. I still find it flabbergasting that politicians and central banks acted in time (and with size and scale) to avert a banking crisis but seem unsure about saving nations, communities, and the lives and livelihoods of millions of people – is there an actuary somewhere with a model that has priced the life of a banker relative to a fisherman in Barbuda? The answer, unfortunately, is yes.
The announcement of the formation of the International Sustainability Standards Board is a positive step forward – measurement is key if we are to align finance in the right direction and hold ourselves and the companies we invest in accountable. As always, timing will be an issue; agreeing on frameworks globally while balancing the needs of business, investors, and regulators is no mean task, and that’s without the lobbying activities of vested interests playing an objectionable role.
Despite the watered-down commitments and failure to secure a 1.5-degree pathway, there is a renewed sense of hope. But countries have made commitments before, and most have not begun the actions needed to achieve them, especially in the near term. Ambitious words and promises are good, but we must judge governments, as with corporations, by their actions.
Evidence that environmental and balance sheet risk are converging grows with every climate catastrophe, regulatory announcement, or pressure group action. In the absence of an adjudicator and regulator with teeth, it will be left to society to hold investors’ feet close to the proverbial fire if they fail to follow through. Importantly, this is now a generational, not an intergenerational issue, so careers and reputations will be on the line.
Talk, as we know, is cheap. This is where an organisation like Osmosis comes in. We go beyond aggregated and subjective ratings and measure companies in our portfolios on their climate action rather than intent. This lens needs to be applied to the wider finance sector to ensure their pledges aren’t just short-term reputation hedges as they continue business as usual. And if hope does fail us, the last resort is the ballot box, where new generations of climate-aware voters can cast their vote on their political leader’s progress, or lack thereof.