Sostenibilità. Facciamo sul serio.

Lessons from COP26

Investors hold all the power for ‘just transition’ to sustainable future

9 December 2021 |
People have woken up to the scale of change needed to address the climate crisis but it is institutional investors who hold the key, says Impact Investing Institute chief executive Sarah Gordon
Citywire logo

This content was created in partnership with Citywire and written by Jennifer Hill.

Blue quotation icon

To make it a just transition, private sector capital must be mobilised at scale

Sarah Gordon

Sarah Gordon

Chief executive, Impact Investing Institute

While COP26 may not immediately change the way people live and work, it reflected far greater realism about the enormity of both the challenge and the collective solution than previous climate change conferences.

‘It’s a truism, but everything’s going to have to change if we’re going to address the climate and biodiversity crises,’ says Sarah Gordon, chief executive of the Impact Investing Institute who was invited to speak at Federated Hermes’ ‘Further, Faster Conference’.

‘We’ll have to alter the way we travel, the way we live, the way we work, our offices, our houses, our cars, where we go, how we go on holiday. People are really realising that all these things are going to change.’

While COP21 held in Paris in 2015 arguably created the most notable single agreement to tackle climate change – to limit global warming to well below 2°C and preferably 1.5°C compared to pre-industrial levels – COP26 left some people wondering whether a last-minute request by India and China to ‘phase down’ not ‘phase out’ coal power constituted a failure.

Headline deals aside, Gordon remains hopeful. ‘What you’re actually seeing here is specific progress on the whole number of different areas where we need to make progress,’ she says.

‘Whether it’s forests or energy or the finance sector, you’ve had some quite granular, detailed announcements about things that are going to happen.’

Gordon hailed the creation of a transition plan taskforce and requirement for large UK listed companies to publish a transition plan by 2023 as ‘incredibly significant’.

‘What you’ve had up until now is a lot of companies committing to net zero but not always providing the detail to show how they’re going to get there. It’s a sad truth but corporate executives tend to have a relatively short-term perspective.

‘The specific challenge is the gap between commitment and action. That’s why transition planning is so important. There have to be more regulatory and policy mechanisms in place to make sure commitments are lived up to.’

To make the transition to a net-zero carbon world – one that is inclusive and addresses social inequities – Gordon insists that investors hold the most power. Even a small proportion of pension assets adopting a ‘just transition’ investing approach would have a material impact.

‘To make it a just transition, private sector capital must be mobilised at scale,’ says the former Financial Times journalist who became the first chief executive of not-for-profit Impact Investing Institute in 2019 when it was founded to accelerate the growth and improve the effectiveness of impact investing in the UK and internationally.

She is cautiously optimistic about chancellor Rishi Sunak’s announcement that companies managing 40% of global assets, equating to $130tn, have committed to the 1.5°C goal.

‘It is, of course, a commitment, so we’ll have to see how well that is delivered on,’ she says, pointing to the broken promise made at COP15 in Copenhagen in 2009 for developed countries to collectively channel $100bn per year of climate finance to developing countries by 2020.

‘We created the problem and we’re rich enough to fund the solution,’ she adds. ‘The gap between commitment and action needs to be much more carefully monitored.’

The International business of Federated Hermes was present at COP26 in Glasgow in two significant capacities.

The group’s CEO Saker Nusseibeh CBE spoke during the World Leaders Summit, underlining Federated Hermes’ commitment to halt and reverse deforestation and land degradation by 2030 and to announce its joining of the Natural Capital Investment Alliance which was created by HRH The Prince of Wales under his Sustainable Markets Initiative. The initiative aims to accelerate the development of Natural Capital as a mainstream investment theme. Both commitments are important steps to meeting the goals of the Paris Agreement.

Federated Hermes also hosted its own ‘Further, Faster Conference’ at their ‘Fringe Festival’ site in Glasgow on land owned within its sustainable property portfolio. The two-day event welcomed investors, fund managers and experts from all areas of sustainability to exchange ideas on how to address the three interlinked emergencies of Climate, Nature and Social Injustice. Click here to see more details on the event.

COP26: Amplifying the voice of investors.

The vital role of stewardship in the last stand against climate change.

The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other communications. This does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.

Related insights

Lightbulb icon

Get the latest insights straight to your inbox