James Alexander
Chief Executive, UK Sustainable Investment and Finance Association
The net zero pledges announced at COP26 by countries and businesses mean that 90% of the world’s economy is covered according to the UK’s Prime Minister, triple the figure from when the UK was announced as COP President.
While net zero commitments stand as one of COP’s key successes, the lack of clarity of whether they will reduce emissions in line with keeping global warming to 1.5 degrees and how they will be delivered, could seriously threaten progress towards the Paris goals.
This is an equally pressing challenge for the financial services sector which delivered a series of its own pledges at COP. For example, over 450 firms representing over USD 130 trillion of assets committed to align with the Paris goals through the Glasgow Financial Alliance for Net Zero (GFANZ).
Delivering on commitments
To ensure our sector can deliver on initiatives such as GFANZ and reassure the wider public on the positive role it can play, we need to collectively consider how we define and build a better holistic picture of a net zero finance sector. With our collective understanding nascent, UKSIF will be looking to actively contribute to this debate in the UK in the months ahead, considering those areas that will be critical in moving industry to net zero.
Enhancing role of investors’ stewardship
Further enhancing investors’ stewardship role will be one area of focus. Stewardship encompasses the activities undertaken by investors to promote companies’ long-term success, including voting at a company’s Annual General Meeting. Active stewardship, over an exclusive focus on divestment, will be very important and industry and policymakers should consider developing more specific approaches to ‘net zero stewardship,’ while avoiding simply passing stocks onto other actors in private markets.
We need to collectively consider how we define and build a better holistic picture of a net zero finance sector.
Public investment in the ‘green economy’
Clarity on the levels of public investment in the ‘green economy’ is another component. Far higher government investment here can encourage the flow of private finance to sustainable investments and help signal to the sector where it can plug the funding gaps required for the UK to reach its emissions targets. Finally, world-leading regulation should be at the heart of defining net zero finance. This means building on the UK’s leadership on climate disclosure (we are the first G20 country to introduce mandatory climate disclosure for businesses) and implementing a robust ‘green taxonomy’ to effectively track the ‘greening’ of financial flows and tackle ‘greenwashing.’ These initial steps should be seriously considered by policymakers, regulators and others in the UK as it decides what a net zero finance sector should look like.