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[originally published on SEC Newgate UK‘s website on August 20, 2024]
COP28 set the direction of travel, with $80 billion in new climate finance commitments made across the public, private and finance sector. These are significant milestones, yes, but a drop in the ocean compared with the sixfold annual funding increase needed by 2030 to keep to the 1.5C limit on global warming.
With Europe warming at a rate twice as fast as the global average and heat-related deaths in the US soaring 117% since 1999, the stakes are hotter than ever, and with that the need for business and investors to engage at speed and scale.
Despite the urgency, however, there is a concerning level of corporate apathy, with many businesses still not engaging at the necessary level. Indeed, more than half of sustainability teams lack the resources to respond to rising reporting requirements, let alone climate action itself. The massive surge in investment required to build the infrastructure and technologies that will power a net zero future has not been seen and is jeopardising global climate goals
Closer to home, the impact of such inaction is particularly acute. The Climate Change Committee’s (CCC) latest Progress Report has recently sounded the alarm, warning just one-third of the emissions reductions needed by 2030 are backed by credible plans, leaving the UK dangerously off track.
The CCC’s sobering assessment boils down to one key message: without immediate and decisive intervention, the UK will not meet its climate commitments. The broader messaging urges the government to correct-course, particularly in reducing reliance on oil and gas and halting the expansion of fossil fuel production. Yet, moving from frameworks to delivering a net zero economy requires significant investment in creating the infrastructure, networks and social systems to drive that transition.
Responding to warnings, Sir Kier Starmer is heading in the right direction to boost growth and unlock investment. Starmer is set to pitch Britain as a “stable place to do business” at the Global Investment Summit in early October, as Labour seeks to attract billions of pounds of foreign capital to spur economic growth and accelerate investment in the UK’s green and growth industries.
By declaring Britain as “open for business” at the summit, coupled with the launch of the National Wealth Fund to deploy catalytic capital into priority net zero sectors, the government is seeking to create a compelling proposition for investors to plug the hole in UK climate finance.
But we are not out of the woods just yet. Whilst Starmer’s efforts to flex his diplomatic muscles and woo foreign investors might bring investors to the table, the big question is whether institutional investors will actually invest and commit to the net zero agenda.
With global government budgets strained, there is no doubt the private sector will have to play an increasingly larger role – as much as 80% of the role, to be precise – in closing the global finance gap. This makes the role of private finance in climate action not just important, but essential.
This being said, recent trends in corporate behaviour suggest a reluctance to fully commit to climate action. This year, BlackRock supported just 4% of shareholder proposals related to ESG issues, a decline from 47% in 2021. This reflects broader tensions within the investment community, where economic pressures and political ‘woke capitalism’ backlash against ESG initiatives are contributing to more social and environmental resolutions being tabled at many corporate annual meetings and ultimately undermines long-term commitments to sustainability.
Given these challenges, businesses and investors are unlikely to be able to tackle the climate crisis alone. Perhaps even the sharpest critics of BlackRock CEO Larry Fink could agree with his stance that is not for companies, including asset managers, to “be the environmental police”. Whilst engagement from business and the finance sector is paramount, governments must create the conditions for meaningful and immediate action to flourish, such as implementing policies that de-risk green investments and providing a stable regulatory environment that supports long-term planning. This partnership between public and private sectors is crucial for driving the systemic change needed to meet climate targets and for ensuring that the financial sector plays its essential role in the transition to net-zero.
As COP29 approaches, the spotlight is firmly on private finance and its role in driving climate action. The ‘Finance COP’ represents a pivotal moment in this journey, and its success will depend on the collective action of all stakeholders – which means they all need to engage more than currently appears to be the case.