Views of the summit from two climate finance veterans
After COP26 adjourned, I was looking for a good way to characterize what had happened at the climate summit. It seemed different from previous COP gatherings and was getting mixed reviews. So, I reached out to some experts on mission-driven investing who have long been at the top of my “go-to” list for insights and perspective: Joe Keefe, president and CEO of Pax World Funds, and president of its investment advisor, Impax Asset Management, and Julie Gorte, senior VP for sustainable investing at Impax.
What do you think happened at COP26?
Julie Gorte: I think COP26 is a fork in the road. Every previous COP has had a grand accomplishment to announce. Such as, here’s this brand new thing: we now have a protocol, we now have enforceable limits on greenhouse gas emissions, we now have an agreement to stay below 1.5 – 2 degrees centigrade.
We are now in a phase of COPs working on a crazy quilt, one patch at a time. We may not ever have another global agreement but we do have these coalitions of the willing that are sitting there diligently sewing each patch. The patches that we worked on this year were deforestation, methane, renewables and a few others.
Also, at this COP, there was an acknowledgment — tacit, not explicit — that we are no longer counting on governments to drive the ball forward. Governments are counting on the private sector to drive change, with them doing a little bit of nudging from time to time.
Joe Keefe: I second what Julie said about how we’ve moved from grandiose, multilateral agreements to a more patchwork system. Methane, good. Deforestation, good. The first time that fossil fuels and coal were mentioned, good. A lot of this is happening because we are not relying on governance to get the job done anymore. I think the sense of urgency that the business sector is now showing, particularly the finance sector — the asset owners and asset managers — is because they are seeing the business sector and capital markets are going to have to do much of the work with fewer signals from governments. So [change] is going to be driven by the private sector.
Are you saying we’re in the sausage-making phase now? Does that development create multiple opportunities for progress?
Keefe: Right. At COP, Impax was one of 12 asset management firms to join the Natural Capital Alliance. We also signed up for the PRI’s [Principles for Responsible Investment] deforestation commitment letter. Just before the conference, we joined the Net Zero Asset Managers initiative and the Power Past Coal Alliance. So a lot is going on in the financial sector now that just wasn’t happening before. You’ve got to look somewhere for optimism, for progress. We — and I mean the royal “we” in the finance industry, not just Impax — have been saying for some time that the business sector and capital markets can lead on providing solutions and that’s what’s going to happen.
Has there been another time in history when a global economic revolution was driven by the markets?
Gorte: This is not a perfect example, but the Montreal Protocol of 1987 is one. There had been years worth of negotiations and concern about ozone-depleting substances and the effect of UV radiation on people as the ozone hole grew larger, and we hadn’t done anything. Then, one year before the Montreal COP, the private industry said, “You know what, we can do this. It’s not only technically feasible, it’s economical.” And that push is what gave the Montreal COP the ability to come up with that protocol. So while it wasn’t an acknowledged leadership position, I don’t think it would have happened but for the people who manufacture air conditioners, hairspray, and all that stuff saying, “yes, we can do this.”
What are your thoughts about the big announcement of the $130 trillion finance commitment? Any ideas on how that effort is going to be executed, and how is it going to be verified?
Gorte: I think this is what Greta Thunberg means by “blah, blah, blah.” Not that the initiative is a bad thing to do. But you get one brownie point for saying it and the other 99 for doing it. We have failed to make the commitments made in Paris. At the moment, I think everyone’s channeling Mikhail Gorbachev and saying, “trust but verify.”
Keefe: The day after COP ended, the U.S. government released a bunch of offshore drilling rights in the Gulf of Mexico to the major oil companies. Of course, they’re worried about how the short-term price of energy affects politics, but what a counter-intuitive message to be sending right after COP ends. We’re right to be skeptical.
We’re going to be dealing with the ironies and the double talk for a long time to come. Politicians will do what politicians do. I feel more confident with the private sector in the driver’s seat than I do with the public sector right now. The next election could take the public sector right back out [of COP] again. That’s how tenuous things are with the public sector. The private sector and NGOs, have a vested interest in progress on a lot of these issues. They have more skin in the game.
Gorte: The $130 trillion initiative was on the part of private institutions, where there is a whole lot of gaming going on. So, when a big bank says we’re not going to finance any more fossil fuel, what they mean is that they’re not going to do any project finance for that. They will still finance the firms that do. What’s needed is a companion commitment from private institutions that says what they’re not going to be spending. It’s important not to finance the bad stuff.
What do you make of the announcement during COP about the ISSB’s consolidation of standards for measurement and reporting?
Gorte: It won’t hurt. I’m not sure how much it will help.
Keefe: I do think those sorts of initiatives about setting some ground rules, some standards, some definitions around sustainability broadly for investors and how they can participate, and what’s real and what isn’t, what’s legitimate and what’s greenwashing, can really move things along. Anything that’s going to direct capital to where we want it to go and away from where we don’t want it to go — I think there’s some progress in that effort. In fact, I think that’s where much of the progress will come from.