Insights

A Week in Impact: The empty promise of climate pledges

As evidence emerges that the world's existing climate policies will do little to slow global warming, governments, investors and lenders are urged to act.

THE EMPTY PROMISE OF CLIMATE PLEDGES

The world’s existing climate policies and targets will not be enough to stop carbon emissions from rising beyond 2040, according to the International Energy Agency’s (IEA) latest World Energy Outlook.

In its annual report released today, the IEA calls for a “grand coalition” of governments and investors to slash the world’s emissions, as well as for “significantly more ambitious policy action” in favour of clean energy technologies.

Which isn’t to say there hasn’t been progress in clean energy. Since last year, the World Energy Outlook—which, as its name implies, forecasts global energy trends—has significantly increased its projections for wind farms, solar installations and battery-powered cars, thanks to the falling price of clean technology and higher clean-energy targets from countries such as India.

Unfortunately, it’s not enough. The world’s appetite for energy is outpacing the rise of renewables, and so fossil-fuel use—and, by extension, carbon emissions—continue to grow. The current set of government targets and policies simply aren’t commensurate with global energy demand and so will fail to bring the world in line with the Paris climate goals.

Others share the same view.

Last week, a panel of scientists claimed almost 75% of pledges are “partially or totally insufficient to contribute to reducing GHG emissions 50% by 2030,” with some unlikely to ever be achieved. Their report, “The Truth Behind the Paris Agreement Climate Pledges,” warns that, by 2030, the failure to reduce emissions will cost the world a minimum $2bn a day in losses from weather events exacerbated by climate change.

With October having been yet another "hottest-on-record” and California and Australia battling devastating wildfires (or bushfires, depending on your lexicon), 2030 doesn’t feel that far off.

FINANCIAL INSTITUTIONS GRAPPLE WITH GREENWASHING

Another week, another headline about an asset manager failing to put its money where its mouth is. (We could, to be fair, also write a paragraph about the degree to which some journalists misunderstand the relationship between index providers and passive investors, but this isn’t that newsletter.)

It appears greenwashing isn’t going anywhere. The FCA has been urged to launch a review after high-profile “ethical” funds at LGIM, Vanguard and Fidelity were revealed to have notable exposure to sectors such as tobacco and gambling. Wealth manager SCM Direct, which is behind the call to action, added: “the ESG sector is akin to the Wild West; yet once again, the UK regulator—just as with the recent Woodford scandal—appears to be asleep at the wheel.”

Safe to say the FCA hasn’t had a great week.

Greenwashing is just another concern for “befuddled advisers,” 69% of whom have been asked about sustainable investing in the last six months. Portfolio Adviser reports that the UK IFA community hasn’t been able to keep up with clients' growing demand for (or at least, interest in) ESG products: “there remains considerable confusion on the right approach, whether it impacts client returns and whether investment companies that claim to have strong ESG credentials really deliver in practice.”

As always, the problem isn’t limited to buy-side. A study from Boston Common Asset found that more banks are signing up to the TCFD and carrying out risk assessments, and yet “these actions have not accelerated the rate of decarbonising lending and investment portfolios, nor broadened the strategic adoption of low carbon and green products ad services.” The report adds that “risk assessment is not necessarily leading banks to restrict or end financing or investing.”

As with climate pledges, it would appear climate-related efforts among financial institutions have been “largely superficial.” Boston Common Asset concludes that "the time for incremental change is over." Hopefully some institutions are listening.