US Special Presidential Envoy for Climate John Kerry has called on the private sector to pressure governments to increase climate ambition on the eve of the crucial COP 26 negotiations. Kerry also called on the investor community to increase their own climate commitments and investment allocations to clean technologies.
“It is important that leaders in the private sector come together and call for higher ambition from the international community,” the US Special Presidential Envoy for Climate told a webinar on 20 October organised by London Stock Exchange Group (LSEG) and the Principles for Responsible Investment (PRI).
He noted that, while countries representing 55% of global GDP have made pledges through the Paris climate agreement process that “keep the 1.5 degree limit on the rise of Earth’s temperature alive … countries representing 45% of the world’s GDP … are still on the outside of that commitment.”
He called specifically on India, Mexico, Indonesia, Brazil and China “to take further action”.
Kerry added that all parts of society, including the private sector, need to raise their climate ambition, and he said that governments frequently raise questions of their financing needs around net zero. “We need to send strong signals that the financing will be there,” he said, noting that asset managers and owners representing $50 trillion in assets have committed to net-zero portfolios by 2050.
“The private sector is absolutely critical to getting us to where we need to go for the simple reason that no government has enough money – in the trillions – to be able to do this,” Kerry said.
In terms of investment priorities, Kerry called for a tripling of levels of finance for deployment of existing renewable energy technologies, and for investment in emerging low-carbon technologies, such as direct air carbon capture, green hydrogen, energy storage and clean fuels. He also called for the retirement of operational coal assets, in South-east Asia and South Africa particularly, and public-private investment in reducing releases of methane into the atmosphere.
The LSEG-PRI webinar was the sixth of a series of events focusing on investor action on climate and took place just 11 days before the opening of the COP 26 climate talks. The webinar addressed issues around the industrial transition to net-zero emissions and the need for collaboration between investors and business.
“Few questions are more important than addressing how we get the business and investment communities working together,” said David Schwimmer, CEO of LSEG. He announced the launch by LSEG of three initiatives to help do so: the publication of guidance to help London-listed companies report in line with the recommendations of the Task Force on Climate-related Financial Disclosures; the issuance of climate governance scores to more than 400 issuers to help them assess and improve their performance; and the launch of a training programme to help companies understand evolving investor and regulatory demands regarding climate.
He added that businesses are getting “an unprecedented volume of requests for information” from investors and are “often confused”. This underscored the need, he said, for collaborative initiatives, such as the Climate Action 100+ engagement initiative. This has brought together 617 investors, managing $60 trillion in assets, to engage consistently with 167 of the world’s largest corporate emitters on climate.
Regulators, too, are playing their part in improving information flows between companies and investors. Also speaking on the webinar was Commissioner Allison Herren Lee, of the US Securities and Exchange Commission (SEC). The agency is in the process of considering a climate disclosure requirement for US listed entities. Commissioner Lee described climate change as an “existential threat to life on the planet".
Observing that it is the role of the SEC not to set climate and energy policy but to “ensure that decision-useful information gets into the markets in a timely fashion,” she said that the SEC is soliciting public comment “of how we can best elicit climate-related disclosure”.
Lee argued that the state of climate disclosure has evolved to a point where “regulation can pick up the baton to help achieve what a voluntary system cannot”, namely “consistent, comparable and reliable disclosure that works for investors, [creates] certainty for issuers, and provides fundamentally important transparency around the systemic risk posed by climate change.”
She also noted the need for “a global solution” to climate disclosure and described the work of the IFRS Foundation in developing an International Sustainability Standards Board as “important and promising”.
Lee observed, however, that while climate data and disclosure are important to ensure capital markets can accurately price risk and allocate capital, “markets are only as reliable as the incentive structures on which they are based.” That explained, she said, why so many analysts, observers and market participants favour putting a price on carbon as key to addressing climate change.
Looking ahead to the COP negotiations, Sagarika Chatterjee, Director of Climate Change, PRI and COP26 High-Level Champions Finance Co-Lead, said that the key question hanging over the negotiations will be whether they manage to keep alive the Paris Agreement’s more ambitious goal of holding global warming to below 1.5°C above pre-industrial levels.
In addition to the possibility at COP26 of increased government ambition, commitments to phase out coal use, efforts to improve climate resilience, and increased finance for developing countries, Chatterjee asked whether commitments from business and investors might see “the real economy going faster than governments” in terms of their climate action.
“COP is the starting gun,” said Alison Rose, CEO of NatWest Group, adding that the talks promise to generate momentum behind “the real economy transition” that will be needed to address climate change. Measuring progress will require “credible transition plans” from companies, using standardised methodologies, allowing a “clear understanding of how to connect the business to the finance to … finance this transition”.
“This problem will not get solved individually,” she continued. “It's got to be done collectively, with close collaboration, working together in partnerships … to unlock the opportunity to transition the economy.”
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