Investors must act now to back net-zero carbon initiatives

THE recent summit called by US President Joseph Biden to address climate change marked an important moment in the battle to combat global warming and the climate change it brings about. As he aptly pointed out in his opening remarks, the 2020s will be a decisive decade on the path to achieving a net-zero carbon emissions world, and the sense of urgency is increasing.

With more than 70 per cent of the world's economy now committed to carbon neutrality, the summit inspired a renewed sense of multilateralism. Unambiguously the US has reclaimed its seat at the table after having rejoined - soon after Mr Biden's inauguration - the 2015 Paris Accord to limit global warming to within 1.5 degrees above pre-industrial levels. Soon after, the US subsequently doubled its previous pledge by committing to cut carbon emissions by up to 52 per cent below 2005 levels, targeted to be achieved by 2030.

The leadership path had been established with fanfare and the summit's concrete results undoubtedly exceeded the expectations of the sustainability community, wherein the bar had been set low.

In addition to re-establishing US leadership, it delivered new 2030 carbon emissions target commitments from Japan and Canada, which are pledging to cut to 46-50 per cent and 40-45 per cent respectively. In addition, China committed to peak its coal use by 2025, South Korea to cease overseas coal finance and Brazil to achieve net-zero emissions by 2050 and put an end to deforestation by 2030.

Still, the summit delivered some disappointments, with large fossil-fuel-producing and exporting nations like Australia, failing to commit to net-zero - even on a long dated timeline as many countries have - let alone set a 2030 target. Nevertheless, the summit marked an awareness that the luxury of time does not exist in the climate change battle, underscored the communal approach required to tackle the colossal task ahead, and the wholesale recalibration of global capital markets required to achieve net-zero.

RESETTING THE CLOCK

Undoubtedly the summit has reset the clock on what can be achieved in time for COP26, set to take place in Glasgow this November. With the Biden administration racing out of the blocks, other countries have been shown a strong example of what is possible, and even what is expected. This provides us with an opportunity to push this year for more than just the usual targets and pledges typical to COPs.

There must be near-term commitments in the Nationally Determined Contributions (NDCs) of all nations to the COP26 effort.

Moreover, the underlying reality which argues for urgent action on climate change is not based on rhetoric or political ambition: a new report from the International Energy Agency revealed that global energy-related CO2 emissions are set for the second largest increase in history and are on track to rise by 1.5 billion tonnes in 2021, an increase of nearly 5 per cent on last year.

But action is not solely in the hands of governments. Investors have a critical role to play in financing the transition to net-zero and are crucial to that dynamic.

A critical input is the Principles for Responsible Investment (PRI)'s and the United Nations Environment Programme Finance Initiative (UNEPFI)'s United Nations-convened Net-Zero Asset Owner Alliance, a group of 37 institutional investors representing US$5.7 trillion in assets under management. The members of the alliance have pledged to reach net-zero emissions by 2050 for their own operations as well as across their entire portfolios and have committed to pursuing near-term targets, including an emissions reduction of between 16 and 29 per cent, to be achieved as early as 2025.

Investors are also using their leverage with high-emission companies through Climate Action 100+, the largest ever investor engagement, with 575 investors representing US$54 trillion in assets under management. This group is achieving important, tangible results and has set a net-zero by 2050 or sooner as its mission.

Adding to the momentum was the recent launch of the Glasgow Financial Alliance for Net-Zero (GFANZ), a sector-wide strategic forum which brings together existing net-zero initiatives including the UN-convened Net-Zero Asset Owner Alliance and the Net-Zero Investment Manager initiative, and which includes new programmes such as the Net-Zero Banking Alliance to create one sector-wide strategic forum.

Trillions of dollars are required to be aligned to drive the transition to net-zero in an unprecedented project of investor collaboration. The hope is that in the coming months, GFANZ will avoid time-washing - setting eye-catching goals far into the future minus the commensurate commitment to achieving them - and help drive consistency and convergence across the finance industry.

As the world is currently falling far short of the Paris Accord targets, COP26 represents the last major chance to fully align with its goals - and with urgency. In the meantime, investors cannot sit on their hands and wait for governments and businesses to act. Rather, they should act now to protect value and back the zero-carbon transition.

• The writer is CEO of the United Nations-supported Principles for Responsible Investment