- Only one-fifth of asset managers have credible climate transition plans, according to a new survey.
- Even major supranational bodies – such as the Financial Stability Board (the creator of the TCFD), IMF, OECD and World Bank – are lacking such plans.
- Governments are also not seen to be taking climate summits seriously enough, with finance ministers not sufficiently involved in the process, says a senior Aviva exec.
Climate transition plans – which set out how companies, organisations and governments will achieve net zero emissions – have shot up the agenda in the past year. Yet, despite this, there remains a distinct lack of action across the private and public sector, including major supranational bodies.
The UK government recently announced mandatory requirements for listed companies and financial institutions to publish transition plans by 2023, while the influential Task Force on Climate-related Financial Disclosures (TCFD) has provided guidance on climate transition plans since October last year.
Accordingly, individual sectors – and the companies within them – are developing their own transition benchmarks and strategies. In the past week alone, the Investor Leadership Network, an initiative representing some $10trn in assets under management (AUM), and Guernsey Finance, an industry and government initiative, published guidelines for achieving net zero emissions. These come after the UK’s Transition Plan Taskforce completed a consultation on a sector-neutral framework for transition plans in July.
However, few financial institutions have implemented climate transition plans, said Steve Waygood, chief responsible investment officer at UK asset manager Aviva Investors (£357bn AUM), speaking at Capital Monitor’s Making Sense of Net Zero forum on 7 September.
Commitment but no plan
This point is supported by the results of a survey from XPS Pensions Group, a UK pensions consulting and administration business. The findings, published on 21 September, reveal 81% of 63 asset managers, covering 255 funds, have committed to net zero by 2050, up from 41% last year. But only 22% could demonstrate a credible plan to support their commitments. Aviva released its first transition plan last year.
Waygood also pointed out that influential supranational bodies, including the Financial Stability Board (FSB), International Monetary Fund (IMF), OECD and World Bank were laggards. None of the quartet has set out a transition plan of its own, he said. Even though the FSB, for instance, created the TCFD.
Capital Monitor asked all four institutions whether they had implemented formal climate transition plans or planned to do so. None of them said they had done so in respect of their own operations.
The IMF said it established an environmental sustainability council in 2021 and invests in technology to reduce energy consumption, has nearly eliminated single-use plastic in its headquarters’ food operations, and has begun the process of replacing its global vehicle fleet with more environmentally friendly vehicles.
A spokeswoman for the World Bank sought to stress the international finance institution’s commitment to climate action, pointing to its Climate Change Action Plan for 2021-2025. She added the organisation had exceeded its target for direct climate financing this year by delivering approximately $31.7bn in funding.
Waygood sees it as significant that such major supranational bodies lack transition plans. The international financial architecture – designed after World War II, to foster world peace, economic growth and poverty alleviation – must adapt to address climate change, he argued.
For context, data from CDP, a non-profit organisation that focuses on disclosure, suggests that just under half (45%) of companies have developed a carbon transition plan, although the depth of reporting varies wildly between sectors (see chart below).
Greenwashing with a UN logo?
A further, related concern for Waygood is the frequent lack of incentives for institutions to abide by net-zero commitments. Citing the UN Principles for Responsible Investment (PRI) – which he helped develop in 2004 – he said an organisation did not have to have a net-zero transition plan to be a PRI signatory. That is also the case for the Principles for Sustainable Insurance and the UN Environment Programme Finance Initiative, Waygood added. “Is the UN allowing those members of those initiatives to greenwash with the UN logo?”
In response, Shelagh Whitley, the PRI’s chief sustainability officer, said the organisation did not require its signatories to make a net-zero commitment before joining to ensure that status was open to all, regardless of the progress they had made on responsible investment and of their resources and expertise.
“We believe this inclusivity is the best way of driving positive responsible investment outcomes at a global scale,” Whitley told Capital Monitor.
Nonetheless, Jeremy Lawson, chief economist and head of the research institute at UK asset manager abrdn, voiced general concerns similar to Waygood’s during the same panel. While there is “no shortage of UN-related movements and organisations devoted to accelerating the transition path”, he said, there are no teeth such as penalties for violating guidelines and objectives “over and over and over” and that the finance sector needed incentives to change.
At a government level, meanwhile, policymakers did not set stringent regulations for the private sector on pollution, said Lawson, partly because they were more concerned with being re-elected.
Just a political drama
The UN-backed Cop climate summits also came under fire at the event for a lack of effective impact. Branding the process of these talks “complete nonsense”, Waygood said the summits entailed choreographed political negotiations led largely by foreign ministers with insufficient involvement from finance ministers, with last year's Cop26 event a prime example.
“Last year [at Cop26], they promised to try to keep 1.5C alive… this is not a likely scenario. It’s about 15% likely that we stay within that boundary,” Waygood said. “We’re much more likely to go way north of Paris Agreement [targets], according to the economic data we’ve been looking at for which the figures will be published.”
It is not enough for foreign ministers of countries to make a promise and have that endorsed by the state, he argued. Finance ministers and central banks need to implement fiscal measures, such as raising taxes positive on “bad stuff [for the environment]” and subsidising “good stuff”.
Waygood was not alone in complaining of a lack of concrete follow-up action at Cop26 and of political will. Making a similar point later at the event was Gyude Moore, senior policy fellow at the Center for Global Development, a Washington, DC-based think tank, as well as Liberia’s former minister of public works.
At the Africa Adaptation Summit, held on 5 September in Rotterdam, six African heads of state from Africa had attended but only one from Europe – the host, Dutch prime minister Mark Rutte – said Moore. “The Senegalese president said if they could fly from Africa to come to an adaptation summit in Europe, the European leaders who live in the continent could [too].”
What’s more, Moore said none of the money promised by some G7 countries at Cop26 to help South Africa with $8.5bn to transition away from fossil fuels had yet been delivered as the conditions attached to the commitment were still under debate. “On the question of financing the transition, I don’t know if [Africa is] getting the amount of support that will be required,” he added.
Given the much-increased focus on climate transition plans – and increasing amount of guidance around them – perhaps more certainty is on the way in this area.