Last week, Manifest’s Joy Williams and Laura Zizzo attended, along with 1,700 participants, the annual PRI in Person conference: “Responsible investing in an age of urgent transition.” The Principles of Responsible Investing (PRI) is an investor initiative in partnership with the UNEP Finance Initiative and the UN Global Compact. PRI signatories pledge to implement six principles focussed on bringing environmental, social and governance (ESG) into their work and now include 2,250 firms representing almost $90T USD.
With climate change and sustainability issues getting more attention than ever among mainstream investors, the PRI’s leadership in the finance sector and the role of PRI’s annual conference has become prominent in shaping the rapidly growing sustainable finance sector.
Here are the top five trends that we feel have staying power and will require a response from the financial sector.
1. Investing needs to match urgency
At the event, there was certainly a lot to feel hopeful about, but also clear indications that the scale and pace of investing in mitigation and adaptation needs to ramp up significantly to respond to the urgency of climate change. The recent release of numerous reports indicating the impacts are occurring more intensity and frequently than predicted, means the risks to businesses are increasing. The financial sector needs to increase its response to mitigate these threats to the global financial system.
2. Focus on consistency of transparency
The financial and corporate sectors need to align around the Task Force on Climate-related Financial Disclosure (TCFD) recommendations, for better disclosure and data-analysis tools to assess investment risk and opportunity related to climate change.
Building on the work of the EU taxonomy for sustainable activities, there is a need for clear understanding of what activities are “responsible” in light of a changing climate. A number of participants were hopeful the recommendations from Canada’s Expert Panel on Sustainable Finance will jump-start increased Canadian leadership and bring Canada’s expertise on financial stability to bear on the destabilizing threat of climate change.
3. Turn urgency into investment outcomes
Throughout the event, there was an ongoing conversation about how to turn the recognition of a climate emergency into mainstream investment practices. Many recognized that tracking data was not enough and focusing on outcomes first, and then layer on the process to achieve those outcomes is needed to rapidly increase a transition to a low-carbon economy.
Joy moderated a panel that discussed three examples of investor climate actions currently underway. Institutional investors from Australia (CBUS) and the Netherlands (ABP) spoke about concrete steps their funds have committed to and have taken. Joy moderated and shared lessons learned from the NYS Common Retirement Fund Decarbonization Advisory Panel. The panel’s recommendations set outcomes to decarbonize the portfolio to align with the Paris Agreement and develop a clear structure to meet that goal.
4. Transition is possible but difficult for “exposed” sectors
CEO of Royal Dutch Shell Ben van Beurden discussed the company’s decarbonization strategy and goal of a 50 per cent reduction in emissions. Shell has analyzed the GHG impact of their products (the often illusive scope 3 emissions that most energy companies do not include in their calculations) and linked short term targets to executive remuneration, he said.
Shell’s CEO also said we need to decarbonize demand (when have you heard a CEO advocate for people buying less of their main product?). He said fossil fuel-based companies can’t use the fact that there is still demand for fossil fuels as an excuse not to act decisively. Shell appears to acknowledge they are in a transitioning market and the longer they wait the more disruptive the change will be. This is one of the successes of the Climate Action 100+ initiative – “an investor initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.”
5. The role of tools continues to increase
Various tools to support climate understanding in action featured prominently at the conference. One tool on display was the PRI’s newly unveiled Inevitable Policy Response (IPR). It forecasts the necessary policies that governments will need to meet Paris Agreement’s goals. A response by 2025 will be forceful, abrupt, and disorderly because of the delay, the tool revealed. Investors discussed how to understand and implement these forecasts into their investment discussions.
It is now clear to a broader audience within the financial and corporate world that climate change risk is not going to go away. Investors, banks, insurers and other financial sector agents would be well served to understand the implications and plan for a different future. Manifest supports the work of Canada’s Expert Panel for Sustainable Finance whose final report lays out a number of recommendations for the Canadian financial sector to be winners in the transition to a low carbon economy. It is time now for bold actions.
Also, please see Pension Pulse’s blog article for a broader view on the movement in global financial sector on climate change.
