In hindsight, it seems Larry Fink, founder and chief executive of BlackRock, set the tone when in January he told chief executives of the world’s largest companies environmental sustainability would be at the heart of his firm’s decision-making process when it came to investing.
At the time, Australia was still battling bushfires that in the end killed at least 34 people, burned millions of hectares, killed or displaced around 3 billion animals, and damaged or destroyed thousands of homes and commercial properties, according to data platform Statista.
In early March, three of the world’s largest pension funds – CalSTRS, Japan’s GPIF and the UK’s USS Investment Management – made headlines, issuing a joint statement calling on their partners and investee companies to not focus on short-term returns but to commit to sustainable value creation instead.
That all took place before the world understood how severe, far-reaching and long-lasting the effects of the novel coronavirus would be. But, as the pandemic took hold and monopolised the news, governments and business reiterated their commitment to sustainable investment and fighting climate change, which many scientists and climate experts linked to the pandemic and the world’s increasing vulnerability to such health crises in the future.
Throughout the year, we saw a number of initiatives being launched and pledges announced. Oil major bp said it aimed to eliminate or offset all of the planet-warming emissions from its operations by 2050; the European Council adopted a more ambitious target of reducing greenhouse gas emissions by at least 55 percent compared to 1990 levels by 2030 as opposed to its previous target of 40 percent; and the Institutional Investor Group on Climate Change announced the launch of Net Zero Asset Managers, an initiative founded by 30 global asset managers aimed at supporting net zero greenhouse gas emissions by 2050 or sooner to limit warming to 1.5 degrees Celsius.
Related highlights within the infrastructure investment community include Australian fund manager IFM Investors pledging to reduce greenhouse gas emissions across its assets to net zero by 2050, as well as becoming a net-zero emissions organisation itself. That commitment follows a similar one the firm had made in 2018 with regards to its Australian portfolio, in which it achieved a 7.9 percent reduction in 2019 compared to the previous year.
Another Australian firm and the largest infrastructure manager, Macquarie Asset Management, announced plans to bring its portfolio in line with net zero emissions by 2040. It aims to have these plans in place by end of 2022 and is already measuring greenhouse gas emissions of its portfolio companies.
Brookfield signalled that it will be focusing on environmental, social and governance investment, hiring Mark Carney – former Bank of England governor and current UN special envoy for climate action and finance – as its new vice-chair and head of ESG and impact fund investing. And in December, French investment firm Mirova switched to B Corp status, “formalising its mission to increase its positive impact on both environmental issues and inequality”.
With the US Federal Reserve announcing its decision to join the Network for Greening the Financial System, a group that currently comprises 75 central banks, and US president-elect Joe Biden promising to re-join the Paris Agreement when he assumes office in January, we think it’s a safe bet that climate change and sustainable investment will continue to be a key theme next year and in years to come.
What’s less certain is how effective all these initiatives will prove to be. And we have many reasons to be sceptical. One is the lack of transparency we discovered when we asked the 20 largest infrastructure investors and fund managers what they’re doing to fight climate change for our May Deep Dive; another is the fact that there are many businesses, not just in infrastructure, that are still not reporting in line with TCFD recommendations. A case in point is the NGFS itself, which found that only 10 percent of the 40 central banks that responded to their latest survey – 35 did not participate – follow TCFD recommendations. Another 30 percent of respondents are considering doing so.
Here’s hoping then that the increase in pledges, commitments and new initiatives realised in 2020 will be matched by an increase in action in 2021. Otherwise, it could all end up being too little too late.