Edelman Smithfield travelled to Sharm El-Sheikh for COP27 and one of the conference’s largest side events, the World Climate Summit (or “the Investment COP” as is it is commonly known). A number of prominent themes emerged during keynotes, panel events and conversations with clients and companies engaged with climate finance.
- Many participants felt the investment community missed an opportunity at COP27
The scale of COP27 was enormous; as well as delegations from across the globe, hundreds of major multinationals and NGOs congregated to update on the progress made against their pledges and targets announced the previous year. However, despite representation from some of the world’s largest and most influential investment firms, a familiar refrain we heard is that investor attendance was markedly lower than in Glasgow a year before.
This was criticised as a missed opportunity. Amid repeated calls for more trusted collaboration between Governments, corporates and investors, there was frustration that those responsible for financing the transition were often “not in the room” this year. Speaking at a dinner hosted by Edelman Smithfield at the end of Week One, one attendee from a global consultancy summed up this sentiment by noting that “at ‘an Implementation COP’ such as COP27, investors are critical ‘implementers’ - so a smaller presence at the C-suite level among asset managers doesn’t augur well”.
- A number of investment firms felt policymakers need to do more to create frameworks which will enable accelerated mobilisation of capital into sustainable projects at the scale and pace required
Investors, too, have frustrations. One of the most acute is that, whilst they “stand ready” to allocate capital to green projects – in both developed and developing markets – many asset managers and asset owners feel limited by a lack of “friendly frameworks” to help them do so.
Dr. James Wilde, Chief Sustainability Officer at Phoenix Group – the UK’s largest long term savings and retirement business – commented that pension funds would be delighted to invest a multiple of their existing allocation into a wide range of green infrastructure, from the roll-out of energy efficient homes to next generation technologies like green hydrogen, but that they are hindered by financial regulations and a lack of policymaker support to create the attractive conditions to invest at scale. He contrasted this with the position of large sovereign investors, such as Mubadala which was present at the same event and which have greater agency over where, when and how they can invest.
- The private sector needs to invest more in creating a legion of true ESG and climate professionals – and a tide of upskilling to make workforces genuine agents of positive change
There was broad agreement that major corporates and investment firms with a small sustainability function which sits below Board level is insufficient to encourage attitudinal and operational changes. How can companies deliver on their sustainability promises if they haven’t incentivised or galvanised their workforces to do so and implemented this from the very top?
There was also concern around the quality of available sustainability training and qualifications. One delegate described the course he was taking as “awful”. Omar Shaikh, MD and Founder of the Global Ethical Finance Initiative (GEFI), remarked that “a wave of sustainability upskilling” is needed across the finance industry – but that courses will need to evolve in real time to keep up with the pace of change. Encouragingly, this challenge was precisely the focus of an event organised by Columbia Business School which, alongside other academic institutions, has developed an educational framework that can be rolled out across the private sector and which was lauded as “exceptional” by several senior executives who attended.
- The financial services community is relying on better data and the funding of new technology to keep the target of 1.5 degrees remotely realistic
At a panel event at the Investment COP, Mercer launched new research based on the views of more than 400 institutional investors, representing more than $50 trillion in assets under management. A key finding was that there is a “trust gap” from investors around the reliability and robustness of climate data from emerging market companies. 60% of investors do not regard the climate data of Emerging and Frontier Markets companies as reliable, versus only 25% who share the same scepticism about developed market company data. With asset managers being obligated to track the emissions of the companies in which they invest, poor data is a huge barrier to increasing capital allocation to the Global South.
The glimmer of hope was provided by Fintechs, such as Kristian Ronn, CEO of Normative, a carbon accounting engine, and Professor Martin Stuchtey, the founder of The Landbanking Group. Like many of other incredible new and innovative companies we met at COP, both offer solutions to make investment decisions based on more accurate data - at scale - and with tech-enabled risk-controls in place.
- The finance sector needs to get its inventive mojo back
Identifying smart, new technologies - and working out how to scale them - was widely seen as best hope of fighting climate change. We witnessed some astonishing, impromptu demonstrations of potentially game-changing innovations at different points. This included a spontaneous pitch for investment from Technocarbon Technologies, a company which produces a lightweight, energy-efficient, steel-like material from granite, using carbon fibres.
However, to fund radical new frontiers of technology will require boldness and creativity on the part of financial industry. Rick Lacaille, Global Head of ESG Initiatives at State Street, argued that “finance needs to get its mojo back” which, he suggested, had drifted post the Global Financial Crisis. Although careful to note he was not advocating a repeat of the mistakes that led to the crisis or there to prescribe the answers, he underlined that funding adaptation and protection, especially in emerging markets, necessitates innovative solutions such as blended finance as well as smart price discovery mechanisms.