'Can the wealth industry overcome its greenwashing tendencies?'
By: Tom Cassidy - FT
Cop27 took place at the end of 2022, bringing governments, businesses and civil society groups together to address the global problems associated with climate change, and it prompted discussion of the financial sector’s role in this.
Top of the agenda for the wealth industry, as it considers the part it could play in enabling the transition to a low carbon economy, was how to allocate resources effectively.
One innovative example of how this could develop was the launch of the Net Zero Asset Owner Alliance, an enlightened group of more than 70 asset managers with more than $11tn (£8.6tn) in assets, which set its goal to align its investment portfolios with those of the Paris Agreement.
The implementation of the Paris Agreement was designed to combat the increase in global average temperatures with economic and social transformation.
There has already been significant effort from both regulators and investors within the wealth industry to help better financial markets and help align their goals with those of the Paris Agreement.
It recognised the need for private investment to support the transition to a low carbon economy.
This was a major development for the wealth industry as investors aimed to reduce portfolio emissions by a quarter in the next five years, with rolling five-year targets to follow, until net zero is achieved by 2050.
Combined with this, Cop27 offered new tools and guidelines to help financial institutions assess and disclose the climate-related risks and opportunities in their investment portfolios.
The intention was to allow investors to make informed decisions about where to invest in order to facilitate greater transparency and accountability.
Putting money where the mouth is
With the majority of defined contribution pension providers failing on climate change, this has become urgent.
Firstly, more than £300bn of UK pensions are invested in companies at risk of driving deforestation and other negative environmental impacts.
Secondly, just over half of providers are yet to publish new emission reduction targets.
It has now become clear that UK pension schemes cannot realistically act on climate change without driving their asset manager and portfolio companies towards a net zero target.
This reinforces the view that the UK pension industry is struggling to keep up with addressing the climate emergency.
Greenwashing is a particularly important issue as the industry acknowledges a lack of rigour in the net-zero climate targets set by some wealth businesses.
In response the UN has recommended new targets, including reducing the overall emissions within the supply chain over the short, medium, and long term.
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