The forces driving business action on climate change
The investment arm of the Church of England has become the latest organisation to sign up to the UN’s Net-Zero Asset Owner Alliance. In doing so it’s joined ‘the most ambitious institutional investor initiative to date’- an 18-strong group of world-leading pension funds and insurers committed to decarbonising their portfolios to net-zero emissions by 2050.
It brings the total assets managed by Alliance members to over US$4.3 trillion – no small step on the pathway towards a sustainable economy.
Engagement, not divestment
Crucially, Alliance members won’t be divesting from their current portfolio to achieve their net-zero target. Instead, they’ll be ‘working closely with companies to change their business models, adopting climate friendly practices and ideally setting a net-zero target based on what science tells us is necessary in order to strive for a 1.5°C world’.
What does it mean for business?
It’s difficult to overestimate the huge influence that this group will have in driving business towards sustainable practices.
We are seeing a transformative market shift, one in which companies will need to be transparent about their environmental performance, and set clear, science-based targets to reduce their emissions.
There will be a regulatory push too. The UK government has already committed to reach its net-zero target by 2050, but so far, the shift in UK policy to meet this has fallen short.
The Alliance will be holding governments to account. One of its core objectives will be to engage policymakers ‘towards policies supportive of net-zero economy ambitions.’
UK companies are already facing increased regulatory scrutiny over their climate impact. Streamlined Energy and Carbon Reporting (SECR) came into force last year, and requires almost 12,000 large UK companies to publicly report on their emissions and carbon reduction initiatives taken that year. For many companies, it’s the first time that their carbon footprint will be laid bare for all to see. This presents a reputational risk for come companies – but it’s also an opportunity to drive meaningful action on climate change; and in turn become more attractive to investors.
SECR doesn’t mandate that action be taken on carbon reduction; but initiatives such as the Alliance show that the market is stepping in to fill this policy gap.
If 2019 was the year of climate declarations, it’s looking like 2020 may be the year of action and accountability. Businesses can expect to see more reporting, more transparency, and more pressure to set carbon reduction targets in line with science. The businesses that want to be here tomorrow, will be taking decisive action on climate change today.
If you need advice on setting long-term carbon reduction strategies, or meeting compliance obligations, get in touch with us.