It has been 51 years since the world first celebrated Earth Day, but instead of making progress in terms of protecting our planet and mitigating climate change, the outlook for the environment is still looking bleak.
Worse still, while there have been many long-term commitments, little has been done in terms of action taken, leading to members of the responsible investment industry to call for company management and governments to step up and take immediate steps.
A report from UBS Global Wealth Management’s chief investment office, titled Future of Earth and co-authored by Solita Marcelli, CIO Americas and team, said: “Our current standard of living and overall level of consumption are unsustainable in relation to our planet’s finite natural resources.
“We have the power to shape a more sustainable path that will allow us to continue to evolve our quality of life while preserving our planet for the next generation.
“Urgent action is needed to combat the growing climate crisis. A coordinated effort between the public and private sectors will be critical to solving the challenges ahead.”
Over a 50-year period, 32% of the world’s forest area has been destroyed, 85% of wetlands have been lost, 50% of the world’s coral reef systems have disappeared and there has been, on average, a 60% decline of vertebrate species, according to a note from DWS.
Furthermore, natural disasters caused an economic loss of $268bn globally in 2020, according to Aon. In the US alone, 22 natural disaster events took a financial toll of more than $1bn each, a new annual record and double the number recorded in 2019.
Alarmingly, Lucian Peppelenbos, climate strategist at Robeco, also pointed out that while we need to decrease greenhouse gas emissions by 50% by 2030 in order to limit global warming to 1.5 degrees Celsius – outlined in the Paris Agreement – the latest stocktaking by the United Nations revealed the climate policies of all national governments will only lead to a meagre 0.5% reduction by 2030.
“This means the gap between these two is approximately hundredfold,” he said.
Peppelenbos also highlighted over the past year that with the wave of net-zero commitments from governments, businesses, investors, universities, cities and regions, experts estimate that 60-70% of global greenhouse gas emissions are now subject to a commitment for net zero by 2050.
“Decisive public policies will accelerate further action from investors and industry,” Peppelenbos said. “In that way, the gap between ambition and action can quickly be bridged. The biggest risk of climate change is inaction, so let us take all opportunities to act now.”
There have been further announcements this week in the lead-up to today’s Earth Day summit – the Leader’s Summit on Climate Change convened by President Joe Biden will see 40 world leaders gather and renew ambitions for global climate action.
The Financial Times has reported the UK prime minister Boris Johnson is set to announce a new pledge to reduce emissions by 78% by 2035, while the EU has set a new target to cut carbon emissions by at least 55% by 2030. Biden is set to make a similar commitment for the US at the event.
“[However] the key challenge is to turn long-term commitment into immediate action,” Peppelenbos added.
What about asset managers?
ESG Clarity has covered the slew of announcements from asset management firms in terms of their own net-zero commitments but also how they are supporting the transition to a more sustainable planet in their investments.
However, a report from Squarewell called the Changing Climate on Investor Behaviour found differing approaches to climate from asset managers’ voting patterns depending on their size and region.
For example, when it reviewed 30 of the world’s largest 30 investors’ voting policies it discovered fund groups with larger assets under management (BlackRock, Vanguard, etc.) were more hesitant to support climate-related shareholders.
Meanwhile, European asset managers were more supportive of climate-related shareholder proposals, with BNP Paribas Asset Management supporting 66 out 71 climate-related shareholder proposals coming to a vote, while US-based Dimensional Fund Advisors supported only five climate-related shareholder proposals out of 159 proposals they voted on during the period under review.
Overall, just seven out of 30 asset managers have disclosed a policy on divestment from companies that negatively contribute to climate change, but more encouragingly climate change considerations are starting to appear in investors’ voting policies and 13 out of 30 asset managers either reference climate change as a relevant factor in its evaluation of director elections or have provided a climate-related concern as a rationale for voting against directors up for election.
With the might of lifetime savings, this is where investors can have real impact, according to Vicki Bakhshi, director of responsible investment at BMO Global Asset Management.
“There is a collective responsibility at the country, corporation and individual level to address climate change urgently. As investors, we must use our position as stewards of capital to engage companies to adopt climate-friendly business practices and encourage positive change.”
Gerrit Ledderhof, responsible investment manager at Aegon Asset Management, agreed: “investors are able to play a pivotal role in proactively and positively supporting this shift as the energy transition continues to accelerate through 2021 and beyond. With the world slowly coming back to life following the rollout of Covid-19 vaccination programs, it is more important than ever to recognise this opportunity to re-direct capital in support of the net-zero transition and global carbon reduction objectives.”