Natasha Landell-Mills, head of stewardship at Sarasin & Partners
Global institutional investors representing more than $100trn in assets have been calling on companies and auditors to deliver net zero-aligned accounts since last year. At COP26, governments should set a clear and urgent timeline for companies to produce accounts and audits that consider the global transition onto a 1.5°C pathway. This means companies should consider how the global decarbonisation effort will impact their businesses, and thus the reliability of their reported financial positions.
Furthermore, governments should require auditors to test whether company accounts adequately consider accelerating decarbonisation. When they determine the company has not done so, they should be required to report publicly where they believe the largest material risks lie.
Rising concern over the lack of financial disclosures has prompted a growing number of investors to call for Paris-aligned accounts. We do not have years to wait for companies to voluntarily review and revise financial statements. To ensure a sufficiently rapid system-wide change, governments should mandate 1.5°C-aligned accounts. The sooner governments act, the lower the cost – both financial and societal.
Maria Elena Drew, director of research, responsible investing at T. Rowe Price
One of the core goals of COP26 is to mobilise the world’s financial institutions around contributions to climate finance to help ensure we meet net-zero targets. As key financers of the economy, banks will play a pivotal role in the transition toward a low-carbon economy through both green financing and efforts to align lending portfolios to the goals of the Paris Agreement.
A key goal of COP26 is securing commitment from developed countries to mobilise climate finance of at least $100bn per year to help facilitate global net-zero. Banks will be crucial, and most leading institutions have now set targets for sustainable and green financing.
We believe there is a potential revenue opportunity for banks at the forefront of green financing. Banks may even receive capital incentives in the future, similar to programmes launched by central banks in the past to encourage lending to SMEs. For example, Pillar 1 capital requirements could be lowered for a bank’s exposure to green assets. With increased attention from regulators and growing scrutiny from shareholders and nongovernment organisations, banks could suffer reputational damage unless portfolios are aligned to the goals of the Paris Agreement.
David Kneale, head of UK equities at Mirabaud Asset Management
Just under 1,200 UK companies have joined the UN’s ‘Race to Zero’ campaign, including more than a third of the FTSE 100. This entails formal pledges to achieving net zero carbon dioxide emissions as soon as possible, or by 2050 at the latest.
Investors now expect as a matter of routine detailed disclosures on firms’ emissions and science-based targets for their emissions reduction strategies. As these become standard practice, very soon the failure to make a net zero commitment will become a significant source of pressure on management teams.
Events such as COP26 are vital to keeping the pressure on and momentum up, but the mammoth task of repositioning UK PLC is well under way. This is extremely good news and investors are right to be so supportive, but there remains a significant amount still to do – as was made clear by the recent release of the Intergovernmental Panel on Climate Change’s Sixth Assessment Report.
