James Alexander
Chief Executive UK Sustainable Investment and Finance Association
The net zero pledges announced at COP26 by countries and businesses mean that 90% of the world’s economy is covered according to the UK’s Prime Minister, triple the figure from when the UK was announced as COP President.
While net zero commitments stand as one of COP’s key successes, the lack of clarity of whether these will reduce emissions in line with keeping global warming to 1.5 degrees, and how they will be delivered, could seriously threaten progress towards the Paris goals.
This is an equally pressing challenge for the financial services sector which delivered a series of its own net zero pledges at COP; for example, over 450 firms representing over USD 130 trillion of assets committed to align with the Paris goals through the Glasgow Financial Alliance for Net Zero (GFANZ).
Delivering on commitments
To ensure our sector can deliver on initiatives such as GFANZ and reassure the public on the positive role it can play, we need to collectively consider how we build a better holistic picture of a net zero finance sector.
Stewardship encompasses the activities undertaken by investors to promote companies’ long-term success.
With our collective understanding nascent, UKSIF will be looking to contribute to this debate in the UK in the months ahead. As we carefully consider those areas that will be critical in moving the industry at home towards netzero alignment the UK should use its COP Presidency, which continues through next year ahead of COP27, to actively encourage other global financial centres to net zero.
Enhancing role of investors’ stewardship
Further enhancing investors’ stewardship role will be one area of focus. Stewardship encompasses the activities undertaken by investors to promote companies’ long-term success, including voting at a company’s Annual General Meeting. Active stewardship will be very important and industry and policymakers should consider developing more specific approaches to ‘net zero stewardship’ which avoid simply passing stocks onto other actors in private markets.
Public investment in the ‘green economy’
Far higher investment from governments in the ‘green economy’ is another component, along with signals to the sector where it can plug the funding gaps required for countries to reach their emissions targets. Finally, world-leading regulation should be at the heart of defining net zero finance. This means nations building on recent climate disclosure efforts (increasingly we are seeing mandatory disclosure rules across the world) and implementing robust ‘green taxonomies’ to effectively track the ‘greening’ of financial flows and tackle ‘greenwashing.’
These initial steps should be seriously considered by policymakers, regulators and others in the UK and globally as they decide what a net zero finance sector should look like.