Since the last Investment Association Position on Climate Change

The IA published a Position on Climate Change with an Action Plan in November 2020, twelve months ahead of the UK hosting Cop26 – the UN climate change conference – in Glasgow. The build-up to hosting Cop26, and the sense that the world’s eyes were on the UK, has meant that the last 20 months has seen great progress in industry commitments to climate change and new public policy measures to support the UK’s transition to net zero by 2050.

The IA is proud to support members signing up to the Net Zero Asset Managers initiative and was named as the first official supporting partner organisation to NZAM in July 2021. To date, investment managers with £7trn of assets under management in the UK have made this net zero commitment, which aligns to the UN Race to Zero initiative and provides membership to the Glasgow Financial Alliance for Net Zero (GFANZ). This represents nearly three-quarters of the AUM in the UK.

The UK Government’s Finance Day at Cop26 saw coordinated announcements on UK domestic policy. These included:

The Chancellor declared an ambition to make the UK the world’s first Net Zero-aligned Financial Centre with a Transition Plan Taskforce beginning work to develop a science-based “gold standard” for transition plans.
The FCA used the Finance Day to publish an ESG strategy setting out a programme of work to support a market-led transition to a more sustainable economy and a new Discussion Paper on Sustainability Disclosure Requirements and investment labels.

The Cop26 fortnight also contained some important announcements with a more international dimension, including:

The formation by the IFRS Foundation of a new International Sustainability Standards Board (ISSB) to develop a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs.
The Glasgow Financial Alliance for Net Zero published its first progress report showing that $130trn (£95trn) of private capital has now been committed to a net zero initiative. A new permanent GFANZ secretariat was also established.
IOSCO published a set of recommendations on sustainability-related practices, policies, procedures and disclosures in the investment management industry. The report focuses on the need for consistent, comparable, and decision-useful information and the risk of greenwashing.

A more detailed analysis of the outcomes for the investment management industry at Cop26 is available on the IA website.

Inevitably, the global context in which this 2022 Action Plan has been produced is markedly different to the focus in 2020. The public focus on net zero which was observed in the build-up to Cop26 has become more muted, with the UK Government less likely to make bold public statements, despite the continued policy focus on the area. 2020 was also the height of the UK’s exposure to the coronavirus pandemic and this was reflected in our position statement. The pandemic is likely to have had a lasting effect on the attitude of the public and policymakers to sustainability issues but, following the role-out of a vaccine, it has already become a less ever-present consideration in UK policy development. In its place, the Russian invasion of Ukraine has come to be the dominant issue. The consequence of sanctions regimes in Europe and the United States and the potential impact on public attitudes to ESG are prominent areas for discussion. Perhaps the greatest impact will be the disruption of oil and gas supply from Russia to Europe, and the consequences this will have for existing net zero pathways and public support for net zero more broadly.

November 2020 was also a significant date for the United States, where a Presidential election saw Donald Trump’s presidency end after one term and Joseph Biden elected to replace him, entering office in 2021. This was a noteworthy shift for climate diplomacy, with the US re-joining the Paris Agreement in one of President Biden’s earliest acts in office. In 2022, the Securities and Exchange Commission (SEC) proposed rules to enhance and standardise climate-related disclosures for investors. This opened the door to greater international coordination on disclosure standards, although this remains a heavily contested area in US politics.

While we dwell on changes since 2020, it is useful to remind ourselves that the overriding objective – the transition to net zero – has a longer time horizon. In this context, two recent reports of the Intergovernmental Panel on Climate Change (IPCC) highlight the existing scale of the challenge and the urgency of action. The IPCC’s updated global assessment of climate change mitigation progress and pledges found that total greenhouse gas (GHG) emissions resulting from human activities continued to rise between 2010 and 2019 and that average annual GHG emissions during 2010-2019 were higher than in any previous decade. The IPCC’s assessment of the impacts of climate change found that human-induced climate change is causing dangerous and widespread disruption in nature and affecting the lives of billions of people around the world, despite efforts to reduce the risks.