“Shall we all just move to France?”
I messaged Hargreaves Lansdown’s ESG analysis team this week, a mixture of jest and despair, as the French president Emmanual Macron doubled down on his commitment to net zero, after a series of rollbacks this side of the Channel.
Macron has recognised that as well as improvements in air quality and the broader environment, investing in the transition – including e-vehicle infrastructure, rare metals mining and alternative energy provision – has economic and corporate benefits too. Ending dependency on other countries for energy provision, which has been brought into sharp focus over the last 18 months, and which costs the nation €120bn per year.
As well as reducing carbon emissions the president also announced the government would be looking into carbon capture – both necessary to reduce global warming, and potentially a big business, as some companies, and countries, will be reliant on off-setting to hit their net-zero goals.
Here in the UK the last month has painted a rather different picture, as various policies have been scrapped or relaxed, resulting in a weakened commitment to our interim emissions targets. People will now be able to buy and sell till petrol and diesel cars five years later, until 2035, heat pumps have been rolled back by a decade, and we’ve scrapped carpooling, planned policies on diets and meat tax, flight taxes, and increased recycling. We’ve also granted controversial new licenses to begin mining the North Sea for oil and gas.
Of course, emigrating (via hybrid-powered moving van obviously) might change the mood music around you, but it’s not really the answer. In order to meet our global emissions targets it will take more than just one impassioned leader. It will take a combined effort from consumers, corporates and countries across the globe.
So before we abandon all hope, it is worth noting that the UK’s legal obligation to reach net zero by 2050 transcends the ebbs and flows of policies – and political parties.
And many in power and influence have recommitted to their ‘green goals’ in recent weeks despite the policy shift.
The Climate Change Committee, who advise the government on their net-zero plan, have released a response criticising the government’s policy change, saying the UK had moved “backwards”.
This response was echoed by an open letter led the Institutional Investors Group on Climate Change, the UN-supported Principles for Responsible Investment and UK Sustainable Investment and Finance Association. Asset managers including Aviva Investors, Jupiter Asset Management, Ninety One, CCLA Investment Management, Gresham House, Troy Asset Management, Nordea and Redwheel signed the letter expressing “deep concern” about the “misguided” “backtrack”.
See also: – Chris Skidmore: We need to depoliticise net zero
Many of those investors stated that they remained committed to their net zero targets even if the government was not – indeed regulation such as TCFD is still mandated, so companies and asset managers are required to assess the risks and opportunities presented by climate change and detail an emissions reduction plan.
And other companies are standing firm on their net-zero commitments. Look at the pushback from the auto industry for example, where companies such as Ford and BMW Mini have released statements confirming their commitment to decarbonising.
Retail investors are similarly dedicated. In a survey to HL clients, 70% of investors consider climate change extremely or very important when making investment decisions, and the top engagement concern amongst our clients was deforestation. And while market-wide stats have shown some investors selling in recent months, Responsible funds have grown 74% since 2020 .
So what next?
This month ushers in the launch of the Taskforce for Nature-related Financial Disclosures (TNFD) framework, and while it is not yet clear when this will become mandatory for UK companies and asset managers, the Environmental Audit Committee will be discussing making TNFD mandatory in their upcoming inquiry on ‘The role of natural capital in the green economy’.
Like many other financial firms, we had been anticipating the release of the TNFD framework and have been building on our approach to the biodiversity challenge for some time. We recognise biodiversity loss as a systemic risk to the finance sector and are building our capabilities to monitor and mitigate risk across our portfolio in line with our fiduciary duty, as well as recognising our influence as the largest retail investment platform in the UK.
We’re not alone – many firms are already collating data on their direct and indirect impact on the identified buckets including climate change, land, freshwater and ocean use, pollution, and invasive alien species introduction. The data is not yet as available or accurate as for carbon emissions, but it is only a matter of time.
We are in the Make My Money Matter and the Global Canopy Deforestation Free Pensions working group, which is working to define standards in the pension industry to tackle deforestation and associated biodiversity loss. We also support the Investor Policy Dialogue on Deforestation (IPDD), a collaborative investor initiative set up to engage on the issue of deforestation.
The regulatory, legal and social commitments to net zero create both investment risks and opportunities. It is a systemic shift.
As the asset management backed open letter to government stated this week, the transition to net zero is not just essential to combat global warming but “one of the greatest economic opportunities of the 21st century”.
One month of policy push-me-pull-you won’t change that.