Will 2022 be the year that corporate and investment minds become truly concentrated on their commitments to sustainability goals? The debate has shifted from the why of investment responsibility to the how. What practical and effective steps must be taken? How can environmental, social and governance (ESG) ratings be made more reliable? How to measure carbon emissions? How to bring radical new taxonomies to bear on investment decisions?
The world’s regulators are targeting greenwashing – the practice of organisations billing financial products wrongly as sustainable and sound. Setting regulatory and supervisory expectations for asset and wealth managers is fundamental to address greenwashing concerns.
But more fundamentally, regulators are worried about ‘competence washing’ – misrepresentation of knowledge and skills. When Mark Carney launched his new, post-Bank of England career as climate finance adviser to the UK prime minister and UN special envoy on climate action and finance, he declared that every professional financial decision must consider climate change. Too true, but professionalism in this complex and ever-changing field does not come easily.
“A little learning,” according to the English writer Alexander Pope 300 years ago, “is a dangerous thing.” But he also said that “every professional was once an amateur”. His words have stood the test of time. Regulators should encourage the work of professional bodies like the CISI by supporting their extensive work, covering every financial nook and cranny, on the climate challenge and other serious sustainability goals, notably in governance, social concerns, and biodiversity.
"The money is there for the transition ... it's not blah blah blah" Collaboration between business and financial regulators and the private sector has always been vital to ensure success. Financial markets need to be honest, fair and effective to give both businesses and retail consumers a fair deal, including on sustainability. Regulators know this, and by and large how to achieve it. For all the apparent disappointments of COP26 in November 2021, ‘Finance Day’ in the first week turned the spotlight on nearly 500 global financial services firm that had agreed, in some practical detail, to align US$130tn (say £100tn, some 40% of the world’s financial assets) with the climate goals set out in the Paris Agreement, including limiting global warming to 1.5°C.
“The core message today,” said Carney to the assembled bankers, investors and insurers who had made the commitments, “is that the money is there for the transition.” And in a nod to climate campaigner Greta Thunberg, he added: “it’s not blah blah blah,” the words she has been using to excoriate the world’s leaders (including him) for inaction.
He thundered on the importance of net zero as the “critical infrastructure” of the new financial system. “It is about client focus, going to where the emissions are to help get them down. So, companies that have plans in place to reduce the emissions, they will find the capital, those who don’t won’t. So I highly recommend getting those plans in place.”
The commitment comes with a pathway by which the companies involved, including most of the major Western institutions, must use science-based guidelines to reach net zero emissions by 2050, commit to interim goals towards a 50% reduction by 2030, and a 25% reduction in the next five years. This means adjusting business models, developing credible plans for the transition, and then implementing them.
Critically, it means significant work by our sector, and support from its regulators, to turn Alexander Pope’s ‘amateurs’ into professionals. That needs a commitment to learning about the fascinating financial mechanics of the net zero challenge for newcomers and established practitioners alike. They must take this tide at the flood if they are to grasp the great fortunes to be made with the right investments for net zero, and by those who advise them. On top of that comes the glittering prize of protecting our planet for our future generations.
The CISI has a rich and ever-blossoming continuing professional development programme in this vital field, already widely used by our members. We call on our regulators to support this work by encouraging the use of these resources, through requiring new entrants to the financial services sector to take a responsible finance module, and mandating that 10% of an individual’s CPD be related to responsibility, sustainability, and ESG. This would be a helpful nudge and demonstrate leadership from the UK regulator.
This article is published in the March 2022 print edition of The Review, also available as a flipbook.
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