Cop 26 We are on our way now — what next
COP26 has been impressive with the flurry of announcements. These include the Mark Carney led Glasgow Financial Allianz for Net Zero (GFANZ) commitments on deforestation, methane reduction and a mix of improbable NET ZERO. While we await the detail as to the financing and implementation, I believe we are on our way.
The road ahead is strewn with challenges which we will need to overcome. These range from generational, the disparity between old and new economic models, a polarised political landscape, and the speed at which the financial system and investors can pivot.
We are at the base of the mountain, and the climb is high. Maintaining momentum will be critical. There is a truth that the 1.5 Paris target is too small. We need to aim higher. Avoiding post COP 26 fatigue and a renewed focus on working together will be critical elements for success.
It is important to remember we have come a long way. I remember developing CSR programs for boards of companies and spending months just trying to get on the board agenda. Only for the accountants and the CFOS to dismiss the work as “cost”.
Thankfully attitudes have changed. From the conversations I have had over the last twelve months I have two impressions. First, boards and CFOS want and are willing to engage with ESG; however, the complexity of what they can do is confounding. Second, the finance sector is willing and able but the task for delivery is not so simple.
Many executives suffer from cognitive dissonance in making these fundamental changes. Change is hard. Executives are not great at being the ‘first to take a decision’. Many executives are in the second half of their careers. Dealing with the climate challenge is vast and navigating ESG is enormous.
In embracing ESG, we ask executives to solve problems and sometimes change a lifetime ideology while maintaining the returns for investors and the capital markets. But and unfortunately, this creates discomfort and fear. We need to acknowledge this reality.
This said from discussions with risk managers and fund managers in global financial institutions, I believe there is a genuine commitment to finding green assets and projects to invest in over the long term. This sentiment needs to be built upon. I am confident the financial sector can deliver.
Unfortunately, we live in a polarised world where the narrative is binary of green vs greenwashing. It is essential to have empathy and understand the challenges on a personal level. Progress will not be made in a binary world of black and white. Solutions will be found in the grey areas and by bringing people and stakeholder groups together. We need to find equilibrium in the debate.
Without balance and discussion, the risk is we go down the wrong track and find ourselves not making momentum to meet science targets; then we will all suffer. Big targets sound good. However, it is probably more important to focus on delivering the incremental day to day changes.
We need to be pragmatic because we need to build a broad church. I understand many activists and the Greta Thurnburg generation still think not enough is being done. I understand the anger.
My friends and colleagues in the consultancies think tanks, universities and policy-making organisations are to help set the direction. My friends, who are climate scientists, physicists, and engineers, are required to speak truth to power and develop the technologies. The SWF network, pension funds, PE firms and banks all have a considerable task to play in accelerating the flow of capital.
In taking a collective approach, we are on the way to kickstart a new industrial revolution that will reset our capital model. Of course, it will take time, but we will see a new wave of companies that will replace the top FTSE 100.
No matter how complex things look, the prize to be shared is a new low carbon economy, more balanced capital markets with better returns and long-term market valuations. The opportunity for society, business and capital markets are clear. We can do this.
Originally published at https://www.themartelloadvisory.com on May 14, 2022.
