Take Five: Hard Rain

Deep depressions and high expectations were much in evidence as world leaders gathered for the year’s biggest diplomatic get-together.

Adapt or … – ?Storm Boris wreaked havoc across much of Europe this week, bringing damage and disruption across Austria, Czechia, Poland and Romania, before heading south to menace Italy. It was easy for amateur meteorologists to draw links to the 2°C-above-normal temperatures recorded in the Mediterranean Sea in early August. Meanwhile, the professionals warned that the physical impacts of climate change were “reversing development gains and threatening the well-being of people and the planet”. Noting that current policies will only limit climate change to 3°C, the World Meteorological Organization’s (WMO) annual ‘United in Science’ report called for increased mitigation and adaptation action and finance, pointing out that one in six countries do not have a national adaptation plan. The WMO was at pains to offer a silver lining, explaining how digital twins and virtual reality are simulating flood and drought events, helping to better respond and adapt, while advances in AI and space-based Earth observations are improving modelling, forecasting and monitoring capabilities. A separate study from the University of Oxford’s Environmental Change Institute provided further encouragement for those involved in adaptation planning and financing. While not shrinking from the scale of the resilience challenge, the report – based on field observations across multiple continents – concluded that we already have the data, metrics and standards needed “to operationalise adaptation within finance”.? We do, however, fall short in terms of the necessary skills and experience in business and investment, resulting in a lack of joined-up thinking and an overreliance on simplified scenarios that “underestimate the risk of climate change and miss key interlinkages with biodiversity loss”. Now that financial institutions and corporates “get it”, in the words of the co-authors, they need to get on with it.

Future tense – The WMO report was published ahead of the Summit of the Future, which will be held next week as part of this year’s UN General Assembly (UNGA). A key task will be to finalise the Pact for the Future, a new governmental treaty committing signatories to shared goals in five areas: sustainable development and financing, peace and security, science and technology, youth and future generations, and equitable global governance. In part, the pact is another attempt to focus minds on the lack of progress toward the 17 UN Sustainable Development Goals (SDGs), after limited improvement since world leaders signed up to UN Secretary-General António Guterres’ SDG rescue plan 12 months ago. There’s no guarantee of transformative change this year either, but efforts will be made to further reform the global financial architecture, potentially including the creation of an economic Security Council and steps towards more democratic oversight of the International Monetary Fund and the World Bank. Another mooted approach involves the development of a “corporate accountability process”?that would tie profit, people and planet together more closely to deliver a more meaningful corporate contribution to SDGs.

Policies, please – The aforementioned Oxford adaptation finance report also noted that “a lack of government action” is stifling progress by the private sector in building climate resilience. This familiar refrain on policy sluggishness was echoed in a five-point statement signed by more than 500 financial institutions, which called for “inclusive” national adaptation planning as part of comprehensive economy-wide net zero transition programmes. For the first time, the list of expectations coordinated by the Investor Agenda covered both climate and nature policy, in recognition of their overlaps and this year’s twin COPs. This seems appropriate in a week during which the Organisation for Economic Co-operation and Development?revealed the extent of the shortfall threatening the Global Biodiversity Framework’s (GBF) Target 19. Investors could perhaps have gone further, voicing support not just for the removal of fossil fuel subsidies, but of all supporting activities that damage nature (GBF Target 18). Collectively, environmentally harmful subsidies total at least US$2.6 trillion a year, or 2.5% of global GDP, Earth Track estimated this week. According to a separate analysis by ActionAid, the issue is acute in the Global South, with fossil fuel companies having received an average of US$438.6 billion annually between 2016 and 2023 and the industrial agriculture sector having been handed US$238 billion.

Anti-OPEC – Joint action to dismantle harmful subsidies could be on the table as part of the UK’s new green foreign policy – a third leg of its net zero action plan alongside the proposed GB Energy and National Wealth Fund. Labour’s Global Clean Power Alliance was unveiled this week, with ambitions to support other countries along their journey to fossil fuel-free power, while meeting the party’s manifesto commitment to decarbonise the UK’s energy supply by 2030. Beyond suggestions of a prominent role and bolder commitments for the UK at COPs 16 and 29 (and support for reforms at the UNGA next week), it’s not yet clear how exactly this alliance would accelerate the worldwide switch to renewable energy. Think tank E3G suggested the alliance could work as an ‘umbrella’ for existing coalitions of the willing, characterising it as the antithesis of the Organization of the Petroleum Exporting Countries (OPEC). Given the UK’s infamous ￡22 billion fiscal black hole, its convening power to find ways for governments to act in concert to remove harmful subsidies and create tax incentives might be the most effective way of achieving Labour’s stated ambition to help poorer countries “leapfrog” to renewables.

Turning back time – Amazon CEO Andy Jassy announced the end of the era of working from home, stating that the online retail giant would from January require employees to attend their workplace five days a week in person. “We’ve decided that we’re going to return to being in the office the way we were before the onset of Covid-19,” he said. We should probably give Jassy the benefit of the doubt, assuming that he doesn’t really expect to turn back time. Not only can we not unlearn our experiences during and after the pandemic, nor can we uninvent the technology leaps that have enabled us to work, largely productively, in new ways and in different spaces. It will most likely be firms that take the trouble to monitor their employees’ evolving relationship to their workplace that emerge the most resilient, rather than those expecting workers to just go back to ‘normal’.

This is my weekly blog, also published on www.esginvestor.net, in which I collate and comment on some of the main news items of the week from a sustainable investment perspective. Please click through and subscribe.