For Investors with Ambitions to Lead on Climate Action Post COP26

‘People make Glasgow’ is a phrase used by the city’s tourist board,^[1] and by Glaswegians themselves, to describe their hometown. As the dust settles after COP26, the focus has turned to what people can do to make Glasgow a catalyst for progress on the intensifying global climate emergency.

In the weeks following the conference, investors in the UK and worldwide face a myriad of upcoming climate-related regulations heading towards the implementation phase. In addition, major global coalitions such as the Glasgow Financial Alliance for Net Zero (GFANZ) have sprung up to attempt to accelerate decarbonization via targeted investment.

While these developments can provide ample new opportunities for climate action, what practical steps can investors with ambitions to be climate leaders take now?

Direct capital to adaptation activities

Despite the progress made at COP26 with several new pledges for adaptation funding, developed nations are still failing to meet their $100 billion/year climate financing commitment made in 2009. The Secretary-General of the UN, Antonio Guterres, recently called for 50% of climate financing to be committed to adaptation rather than mitigation.   The figure currently sits at 25%, with a significant opportunity for investors to fill this gap.

UK investors and many of their peers are preparing to use the upcoming EU Taxonomy (with a UK Green Taxonomy^[3] following behind), which provides a set of clearly delineated activities companies undertake that support Climate Change Adaptation (one of the six tabled environmental objectives). To bring transparency where insufficient corporate disclosure is observed, Sustainalytics’ EU Taxonomy research solutions can provide the critical insight to target companies engaging in specific, technically screened and environmentally sustainable activities.

Engage with investee companies on their climate commitments

Investors who prioritise good stewardship of their investments require detailed company disclosure to assist them. The UK has led the way in mandating its largest domestic businesses to disclose climate-related risks and opportunities from April 2022, in line with TCFD recommendations. The additional transparency across the economy provided through these disclosures will be vital for investors. They can hold investee companies to account for their own science based targets, or engage with those firms that have yet to disclose their climate goals. Tools such as Sustainalytics’ Carbon Risk Ratings can help firms break down the inherent transition risk embedded in their portfolios, providing a useful signal for corporate engagement.

Leverage innovative organisations

Beyond simply leveraging new climate data and company disclosure, leading investors are partnering with organizations that innovate new paths to net zero. GFANZ has produced 17 investment opportunity roadmaps across four investment archetypes for investors to view high priority global investment opportunities. The required investment timeline (both public and private) is highlighted for each. The underlying Paris Aligned Investment Initiative (PAII) provides a framework to support investors to implement their commitments, including a Net Zero Asset Owner Commitment^[6] featuring a series of ten actionable, net zero focused action points.

People make Glasgow, and with the private sector still representing 75% of global climate finance flows, it’s apparent that the global investor community will make or break the Glasgow Climate Pact.

_Sources:

_{[1] https://peoplemakeglasgow.com/
[2] https://www.unep.org/news-and-stories/story/what-does-cop26-mean-adaptation
[3] https://www.fca.org.uk/publication/discussion/dp21-4.pdf
[4]  https://www.reuters.com/world/uk/britain-says-company-climate-disclosures-will-be-mandatory-2022-2021-10-29/
[5] https:/www.gfanzero.com/netzerofinancing
[6]  https://www.parisalignedinvestment.org/media/2021/03/PAII-Net-Zero-Asset-Owner-Commitment-Statement.pdf}