Katherine Garrett-Cox: Commitment, collaboration and consequences

Being in Paris six years ago at the agreement of the International Treaty on Climate Change was an incredible moment. It felt extraordinary. The city was full of hope, as countries came together to send a clear signal about the importance of tackling climate change.

What have we learned since then? 
We have learned that a broad and geographically diverse set of countries across the globe have been prepared to make ambitious voluntary commitments in line with the Paris Agreement, challenging themselves to turn the hope of Paris into a reality. 

Climate science has delivered more precise impact analysis, scenarios and tools, improving our ability to assess and manage the risks. There has been a slew of initiatives to help meet country-level commitments, such as the Science-Based Targets Initiative and Race to Zero. 

But since 2016, many more people have experienced for themselves the devastating impacts of floods, fires and extreme temperatures linked to climate change. And progress has been slow in many areas.

Where Paris was about bold commitments, my hope is that in Glasgow the COP26’s focus will be on collaboration. 

We need regulators to set a clear trajectory, providing a useable framework to support and stimulate the contribution of other players. Policymakers need to resolve critical outstanding issues such as the need for a global carbon price floor. They should accelerate momentum around existing initiatives such as the Taskforce for Climate-related Financial Disclosure (TCFD) by committing to a transition to mandatory disclosure. 

Philanthropists and NGOs also have a critical role to play. For example, CDP Worldwide has helped to drive a huge increase in carbon-related disclosures, with over 9,600 companies, covering more than 50% of global market capitalisation, having disclosed through CDP in 2020. Donor funding will remain important, especially in enabling a just transition – although this alone is not enough.

Investors as a driver
This is where investors come into the fold, as they are a powerful driver of alignment with the race to zero. Estimates suggest that an increase in annual investment of 2% of pre-COVID-19 GDP is needed for climate-related investment for this decade and beyond.

Investors have a loud voice that they could make even louder, in calling for governments and businesses to live up to the Paris Agreement. We see this collaborative advocacy through the $43trn (€37.2trn) in assets under management of the 128 signatories of the Net Zero Asset Managers Initiative.

At GIB Asset Management, our view is that companies that go further and faster than their peers to limit the rise of the global temperature to 1.5ºC are more likely to perform positively over the long term. By integrating such thinking into their strategies, investors can change the way capital is allocated in support of a faster climate transition. Furthermore, engagement with investees on sustainability-related issues can help to unlock further value. 

Climate change remains a polarising topic, making collaboration challenging, but my hope is that COP26 will bring differing and dissenting voices to the table. These will be hard conversations, but they are critical in ensuring that we can move forward with everyone pulling in the same direction. 

“It is essential that COP26 puts us firmly on the trajectory for zero-carbon emissions. This is the decade where we will define the future, and where we need to start seeing real impact. Estimates suggest that greenhouse gas emissions need to be halved in the decade to 2030 to meet the Paris targets”

However, commitments and collaboration only go so far; what we ultimately need are real consequences before 2030. 

For investors, the consequences should be clear in capital allocation, investment strategies and financial performance. Physical and transition risks will have materialised. The pattern of investment is likely to shift, as climate finance needs to flow from developed to developing markets. 

The winners from the climate transition will be clearer – innovative new companies or existing players that have adapted their business model to help solve the challenges of climate change. 

A clear trajectory needed
Additionally, it is essential that COP26 puts us firmly on the trajectory for zero-carbon emissions. This is the decade where we will define the future, and where we need to start seeing real impact. Estimates suggest that greenhouse gas emissions need to be halved in the decade to 2030 to meet the Paris targets. 

Change needs to be visible on the ground, through the air, and in our oceans. Deforestation, pollution, ocean degradation should all be showing improvements. Frontier areas of ESG cannot be overlooked anymore – such as the intersection between climate change and resilience, ensuring that vulnerable communities are protected. 

While the main stage at COP26 will continue to be the purview of governments and policymakers, I believe that equally critical action will be taking place at the World Climate Summit – the Investment COP2021. This is a key forum for business and investment-driven solutions to climate change. 

While there was a pervading sense of hope in the air in Paris, I want action on the ground in Glasgow.

Katherine Garrett-Cox is CEO of GIB Asset Management and chair of CDP Worldwide