Facilitated by Ralph Jackson, Director, Lansons
Headlines:
- COP26 is approaching in November and as the host nation, the UK will be at the forefront of these negotiations.
- Many asset managers will be using COP26 as an opportunity to listen and begin engaging in the sustainability conversation.
- Asset managers are already innovating in ESG, however a lack of standardised measurement continues to be a problem.
- Asset managers are also facing increasing questions around their fiduciary responsibilities in providing returns vs their ethical responsibilities.
Discussion Summary:
This autumn the city of Glasgow is set to host the 26th United Nations Conference of the Parties (COP26), a gathering which will set the global agenda on climate change and Net Zero for the years ahead. Unlike previous conferences, this year’s meetings will include significant involvement from the USA, with President Joe Biden sending a significant delegation led by the nation’s first ever US climate envoy, John Kerry. As a result, some of the most meaningful discussions on global climate policy will be seen and heard in Glasgow.
Public opinion has significantly shifted on climate issues in recent years, meaning there is now pressure on governments to deliver at COP26. As the host nation, the UK Government will want to be at the forefront of diplomatic negotiations. One key area to be discussed is methods of incentivisation for consumers, corporations, and governments to reduce their carbon emissions. The UK Government will be keen to seek out credible policies of positive incentivisation which will satisfy climate pressure groups, whilst not passing on costs to UK taxpayers.
So why should COP26 matter to asset managers?
When polled, over half of delegates reported that they are still undecided as to whether they will make a publicly declared commitment towards Net Zero, however many reported their desire to be part of the conversation and to use events such as COP26 as an opportunity to listen and use learnings to inform future corporate policies.
We can already see how public sentiment towards sustainable solutions is impacting investor behaviour, with sectors associated with climate emissions already suffering from damaged sentiment. However, if the UK is serious about reducing our carbon emissions by 80% in 2035 and achieving net zero by 2050, further serious and substantial changes to our economy will be required. Asset managers will need to understand how this is going to happen, the levers and mechanisms the government will use, and better understand the pace of change.
Delegates reported several activities taking place within their own businesses to address ESG. A key concern, however, is a lack of standardisation in ESG measurement – particularly in the unquoted space - and the ways in which asset managers can report on their ESG credentials and progress towards Net Zero. However equally, many delegates were concerned that the proposed methods of standardisation focused too heavily on the environment rather than societal issues, an area sustainable investment must catch up on.
Additionally, asset managers raise concerns about the alignment of sustainable investing goals and their fiduciary responsibility to consumers looking for returns within a shorter investment lifespan. This topic raised many additional discussions around demand, in terms of global trends and individual requirements. Delegates agreed that Europe is “‘five years ahead” the US regarding sustainable investing demand and public sentiment towards sacrificing returns to “do good”. However even within Europe, some delegates agreed that asset managers should provide choice for investors as to how they would like to invest according to their individual beliefs rather than using a sustainable default.
