We’ve all seen it in the headlines this year or experienced it firsthand. No. Not the pandemic. The other major pressing problem affecting the entire planet – climate change.
Raging forest fires, droughts around the entire west of the US, major floods in Europe, power outages in Texas due to unusually severe cold weather. The list goes on and on. This November, world leaders, business leaders, diplomats, scientists and a bevy of negotiators will be gathering in Glasgow for COP26, the annual United Nations conference to develop a framework to combat climate change. The main goal of the two-week affair is to put the world on a pathway to aggressively cut greenhouse emissions and slow global warming.
While many of these conferences feel like bureaucratic affairs, this year’s may be different.
Why? Because without drastic and new interventions, we are on a trajectory to fall short of one of the most important goals set at the COP back in Paris in 2015: to prevent the world from warming 1.5 degrees Celsius. Since then we’ve already warmed 1.2 degrees above pre-industrial levels. Every day counts. The latest Intergovernmental Panel on Climate Change report stated that unless there are immediate and large-scale reductions in emissions, the 1.5 degrees target will be beyond reach.
To be successful, COP26 must go beyond policy pronouncements and lead to action. But for those of us who aren’t attending, there’s a lot we can do, too, particularly in the investment community. In fact, I believe that engaging the investment community fully and at scale in investable climate solutions may be the one of the prime missing links we need to change our climate trajectory.
From where I sit as an analyst within an asset management firm, one of the biggest stumbling blocks for investors and investment managers is the lack of reliable data on ESG. For investors to make informed decisions on climate risk we need better data – and this means greater, more frequent and standardized disclosures on climate change from corporates. NetZero commitments are all well and good, but we must push for transparency of the actual numbers. Welton knows firsthand from our work in Europe that the EU has made a good deal of progress on this front. The US can do more with regard to establishing a standardized ESG disclosure framework and broadening the existing reporting standards like SASB and TCFD.
We also need to expand the types of investment solutions out there capable of driving a climate agenda forward while also offering market rate returns. ESG public equities won’t get there alone. Multi-asset ESG strategies, private markets strategies that can support climate mitigation, and new technologies – all of these will be necessary if we want to hit our targets.
As we listen to the policy decisions coming out of this year’s COP26, we can only hope for clear action. But regardless, investors need to do their part to translate policy decisions into better data backed by regulation. Only this way will we be able to fully engage the capital markets to help solve the climate crisis.