Earth Day’s theme for 2022, ‘Invest in our planet’, sounds like an advertisement for sustainable finance. It will provide plentiful opportunities for fund groups to align themselves with this message and showcase the hard work they are putting into funds that benefit the environment.
There is a huge amount of work going into these products, and the money is following. A Morningstar report last week stated at the end of 2021 there was $408bn invested in 860 climate-focused funds globally, roughly double the amount a year earlier.
And it’s needed. The money trail and corresponding levels of atmospheric carbon dioxide concentration plainly show we have been investing against our planet since the dawn of the industrial revolution.
But while this Earth Day’s message to invest in planet Earth brings to mind the money following the sustainable finance movement, there is also the climate activist movement following the money to see why the planet is in this state in the first place. In this direction, the money leads firmly to the feet of those controlling the wealth. Can you see the loop?
Take the change in focus by environmental protests such as Extinction Rebellion (XR); previously, the group was demanding the government tell the truth about climate change and hold a citizens’ assembly to find solutions. In recent rebellions, however, XR’s demands have been pared down to simply ‘end all new fossil fuel financing immediately’. This is something the International Energy Agency has said humanity must do if we want to reach net-zero carbon emissions by 2050.
With this in mind, XR has targeted Barclays, HSBC, JP Morgan, the Bank of England and recently forced Lloyds of London to shut down its headquarters during an action at the site.
As shareholders, asset managers have also put pressure on banks including Barclays, HSBC and Standard Chartered to end fossil fuel funding by filing climate resolutions. The latest of these came in October 2021 when shareholders filed a resolution with Standard Chartered asking it to set, disclose and implement a strategy to manage its fossil fuel exposure in line with plans for net zero by 2050, including a commitment to stop funding new fossil fuel projects.
Pressure is relentlessly mounting on investors to be increasingly accountable and transparent about their negative impact on the planet – in particular on their carbon emissions. And we can expect to see environmental damage control featuring high on the agenda for this year’s AGM season. Unprecedented levels of proxy votes are demanding companies align with the Paris Agreement and show how they plan to reach net-zero emissions. The paper Proxy Preview counted 110 proposals this year about climate change, up from 79 the year before.
UK government ‘action’
Although the UK government didn’t seem to hear it, the authors of the latest IPCC report said as loud and succinctly as they could that going beyond damage control and investing in solutions for the planet requires strong policy support.
“… there is sufficient global capital and liquidity to close investment gaps [in climate finance]. However, it relies on clear signalling from governments and the international community…” the IPCC stated.
UK chancellor Rishi Sunak’s Spring Statement should have been a good enough clue the UK government has no intention of providing the required ‘clear signals’. A planned green gilt issuance was discreetly mentioned in the documents accompanying the statement. There will be £10bn issued in 2022/3, while 2021 saw over £16bn issued in total.
Green finance, then, comes across more like an afterthought than a priority. And what about green industry?
After the IPCC had made its pleas to global policymakers came the UK’s energy security strategy. Maybe I was extra invested in what the government would have to say here, having just moved in to a building that was constructed before the 1973 oil crisis, i.e. not built with heat conservation in mind. But again, the ‘signals’ the investment community need in order to maximise investments in planetary health were missing.
Quick and cost-efficient measures to reduce energy consumption and clean up energy production (like building insulation and onshore wind) were sacrificed for fanciful, slow and expensive options such as multiple new nuclear reactors. The claim is some 10 small modular reactors (SMRs) could be quicker to build than traditional, larger nuclear reactors. But production of these SMRs would start in the early 2030s at best and would hopefully be up and running by 2050.
Forget investing in Earth, those behind this energy strategy don’t seem to even be dwelling here. They must be on another planet if they think this is a fitting plan for the climate crisis – and cost of living crisis – we’re facing.
Richard Nourse, managing partner at Schroders Greencoat, explained the shortcomings of nuclear for meeting our needs: “Costs of nuclear remain to be proven and much will depend on the risk sharing model the treasury adopts later this year between, customers, taxpayers and investors. The sums to build even one, let alone five new power stations, are huge and will make for financing challenges.”
Nourse said with nuclear’s cost issues and long timeframe, most of the work to decarbonise electricity will need to be done by renewables, which are quicker to deploy.
Up for the challenge
Speaking to IPCC author Silvie Kreibiehl, I could see how earnestly she wanted to get her message across to policymakers and financial services. She lives and breathes climate science-informed sustainable finance.
“Understand the report as a call for urgent action and to use every single opportunity to contribute to this transition,” she said. I could tell she meant every single word.
Yet still, so many of our opportunities to invest in our planet seem frustratingly stuck on the whims of policymakers.
The progress on investing with our planet, though, is encouraging. The chance to hold companies accountable at AGMs may not have brought sea changes in corporate behaviour to date, but next to the comparative impunity of policymakers contradicting climate science, it looks hopeful as a way to push carbon footprints in the right direction. That is, if investors are up for the challenge.
