Follow the money
We need the corporate world to get on board the journey to net-zero, or we won’t get there and that means making sustainability a good investment. The key is robust measurement and transparency – not greenwash.
In March 2021, a coalition of 35 big investors made a public commitment to net-zero investments1. The news is highly significant because together, the group oversees $8 trillion of assets.
What is important about this news is that the coalition of 35 will apply a framework developed by the Institutional Investors’ Group on Climate Change (IIGCC)2. It is a programme designed to help investors divest from high-emitting companies which do not make a ‘credible’ commitment to decarbonisation.
Information is power in the world of investing, so clear guidance on how to disclose risk from climate change is a challenging subject. Investors often have different views on what constitutes ‘sustainable’. For instance, a company in the wind energy sector is a good bet for green-leaning investors, but what about an oil company making investments in renewable energy?
Some fund managers might regard that as a viable ‘sustainable’ investment. Oil extraction and refining remain the current backbone of the business. On the other hand, simply withdrawing funding seems harsh if a company tries to make significant changes to its core business. Transitions take time – and money.
This need for more transparent reporting is pressing, particularly as more businesses make public statements about corporate net-zero goals. The Taskforce on Climate-related Financial Disclosures (TCFD) report3 from 2017 includes an opening statement from Michael Bloomberg in which he writes:
“The warming of the planet caused by greenhouse gas emissions poses serious risks to the global economy and will have an impact across many economic sectors. It is difficult for investors to know which companies are most at risk from climate change, which are best prepared and which are taking action.”
Partly as a result of the work of bodies such as the TCFD, there is a global shift to stricter rules on reporting on sustainability issues – hopefully
marking the beginning of the end for vague ‘greenwash’. In the USA, the Securities and Exchange Commission (SEC) is set to introduce rules on how corporates assess the impact of climate change on their future business security. And the UK government is also aiming to set higher standards on this type of corporate reporting.
Such information is vital for investors – companies who are assessing the impact of climate change are much more likely to be doing something about it. And those who can’t (or won’t) are likely to see a rapid fall in investor interest. The
market will go to work.
Announcements about corporate commitments to net-zero carbon are coming in thick and fast now. In the UK, big investment funds, including Aviva, Scottish Widows and L&G, have recently set out net zero ‘roadmaps’.
But as building engineers have learned, setting out to design a low-carbon building on paper is relatively easy. Delivering it is a whole different level of difficulty. That’s because we have to move away from doing the ‘usual’ or ‘traditional’ and adopt new technologies and techniques.
The same is true of shifting big business. It’s easy
to make a plan on paper, but getting it done means making significant changes in practice. But we have no chance of reducing the climate emergency's impact if global corporations don’t take the lead.
There are strict rules, strongly enforced, on the presentation of company accounts, so investors know where their money is going. We need the same stringent measures for climate impact mitigation measures and progress towards net zero. Then the money will flow where it can make the most positive impact.