This year promises to be another big step forward in global progress towards tackling climate change. The COP26 Summit, to be held in Glasgow later in the year, promises to maintain the momentum towards environmental and social awareness across many sectors – in particular the wealth management sector – as clients are more eager than ever to invest with purpose and make a difference.
The investment management industry has made great strides in integrating ESG (environmental, social and governance) considerations into their investment process, with particular attention to the ‘E’, by understanding climate risks and how companies manage them.
In the last two years, for instance, we have seen incredible global growth of sustainable investments, with $84 for each $100 of new money going into the equity market to be invested in ESG funds.
Understating which shade of green suits
Consumers grow wary of things. It happens. And while there has been so much attention and momentum generated by the likes of Greta Thunberg and David Attenborough, which has opened the eyes of many to the climate impact of their investments, there is a danger of green fatigue underpinned by growing disappointment around so-called greenwashing.
We need a concerted effort from both industry and government to continue pulling responsible investments into the mainstream, and to make it as easy as possible for consumers to judge an investment proposition for its green credentials. Like one would do with any important purchase, reading and understating the ‘small print’ is essential. That way, consumers truly understand what shade of green they are buying, as not all ESG funds are created equal.
Disclosure and transparency are ways we can provide consumers with specifics on how their investments are making an impact, for instance in accelerating the transition to net zero. And for this we not only need to improve reporting and disclosure, but also to develop more accurate ways to measure the benefits of green investments.
Take the UK government’s recent announcement regarding the National Savings & Investments (NS&I) green bond. The green savings bonds will be used to help finance projects tackling climate change as well as creating green jobs across the UK. But how will the government provide information on the potential green impact of the product? Which methodology is it going to use? This could be the key to whether consumers see the green bond as an impactful investment.
Global policy keeps moving in the right direction
Like consumers, governments can also grow wary of things. Either because the challenge is simply too difficult or if they face stiff political opposition. US President Joe Biden, for instance, will face opposition from the Senate to any radical climate plan. His flagship $1.9trn American Rescue Plan was approved by the Senate by the faintest of margins, so it is by no means guaranteed that he’ll be able to get his climate policies through the House during his administration.
International leadership is going to be crucial in maintaining the policy momentum. It is fair to expect that Biden will use his upcoming climate summit in April to gather further support, and Boris Johnson should use the COP26 summit to show the world that there really is no alternative to serious environmental policy, and to stress the urgency of coordinated government action.
What is the UK doing ahead of COP26?
Ensuring that COP26 is a success is, no doubt, easier said than done. As the event host, establishing a clear framework for achieving net zero by 2050 as well as making significant headway on climate policy and action at home is essential for the UK. For instance, it is reassuring to see the Prime Minister pledging to bring forward a ban on petrol and diesel-fuelled cars by five years, from 2040 to 2035. This is a strong start and suggests a real emphasis on policy and commitment ahead of the November summit.
2021 should be extremely positive for the green agenda, with the demand for responsible investments set to continue for many years. Whilst covid-19 and the success of the vaccination programmes remain at centre stage, climate change continues to matter enormously, and climate policy should underpin a strong green recovery.
At Quilter Cheviot we see responsible investment as a process that analyses ESG data to help inform investment decisions and to ensure that all relevant factors are accounted for when assessing risk and return.
Why the bright blue Olympic hockey pitch was the greenest yet
Despite the result not going our way in the semi-final, Team GB’s women’s hockey team put in a special performance at this year’s Olympics as they sought to defend their title. But actually, it was not just the action on the pitch that was special, but the pitch itself.