Adam Matthews on ‘Deep Regrets’
Chief Responsible Investment Officer (CRIO)
In a recent post on LinkedIN, former RAO Speaker Adam Matthews shared his thoughts on the nuanced commitments of CA100 members. **Climate Action 100+ is an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
He commented; “In talking with Bloomberg News Alastair Marsh I said it was obviously deeply regrettable that some fund managers have decided to withdraw from CA100. That said I would distinguish Blackrock whilst changing their affiliation have recognised that a significant part of their client base wants them involved and as such have nuanced their membership. I personally think that is also an acknowledgement of the ultimate destination the majority of assets will go over time.’
It’s a pragmatic work around on their part and Blackrock International are still a member and I welcome that.
On it’s website, CA100 defines its mission & purpose quite clearly as THE BUSINESS CASE;
The evidence is clear. Across the planet our economies and communities face systemic risks from climate change. To mitigate their exposure and secure ongoing sustainable returns for their beneficiaries, investors must ensure the businesses they own have strategies that accelerate the transition to net-zero emissions by 2050, or sooner and align with the goal of the Paris Agreement, of limiting average global temperature rise to well below two degrees Celsius above pre-industrial levels, and pursuing efforts even further to limit the temperature increase to 1.5 degrees Celsius.
In 2023, we saw some days where the daily global average temperature was more than 1.5°C warmer than pre-industrial times. However, the Paris Agreement refers to a long-term average temperature increase typically measured over several decades. So a short-term increase of this nature does not yet imply that we have crossed the 1.5°C limit of the Paris Agreement, but it is nevertheless of concern.
Adam Matthews goes on “In broader terms it was always convenient for finance to be projected as the saviour on climate when in reality finance can only go so far if the enabling policy environment is not there.
Finance at Glasgow over projected what it could do and you have seen a gradual peeling away of some more flakey members as the penny has dropped that this is much harder than a press release. You actually need to work with companies, sectors and countries to enable the transition to happen. This is about active stewardship as well as understanding the complexity of the transition and providing the patient capital to enable it.
If you approach this from a fiduciary perspective an orderly transition is in the long term interests of most asset owners. Unfortunately walking away by some fund managers, although not Blackrock which remain, albeit in a different form, weakens the pursuit of that orderly transition.
I wonder if the result of this is that we need clearer asset owner leadership and collaboration that enables asset managers to meet our needs? I know this is something I have long discussed with Faith Ward Michael Marshall Udo Riese and many more.”
Indeed, the Grantham Institute makes an even clearer case for immediate action and the imperative for ongoing commitment by asking the question everyone wants and answer to:
When might temperature increase reach 1.5°C?
Although we have not yet reached a 1.5°C level of global warming, our current temperature trajectory implies we will reach this level in 2034.
The window of opportunity to achieve the Paris 1.5°C goal is rapidly closing. Several recent assessments have demonstrated that keeping below 1.5°C will be an immense challenge:
The IPCC’s 6th Assessment Report concluded that, based on mitigation plans put forward in 2021, it is likely (that is, more than 66% probability) that warming will exceed 1.5°C during the 21st century.
The UN’s 2023 Global Stocktake concluded that “global emissions are not in line with modelled global mitigation pathways consistent with the temperature goal of the Paris Agreement”.
The most recent assessment of global carbon budgets has found that if carbon dioxide emissions remain at 2022 levels, the carbon budget to keep temperature increases below 1.5°C will be exhausted by around 2029. (This calculation only includes carbon dioxide. The estimated date for reaching 1.5°C occurs several years after this budget is exhausted because it also considers the effects of other emissions.)
Meanwhile a recent report published by Calastone reflected a shift away from ESG investing:
ESG Backlash
After a three-year ESG boom with $51.2bn of inflows (6x more than non-ESG funds), ESG funds shed $10.2bn in 2023
European investors turned away from ESG first, but we now see the trend across our global network
And summed up their whole market viewpoint as:
Viewpoint
The global economy has consistently surprised on the upside in the last couple of years but the outlook is very unclear
The prospects for asset prices are not the only driver of investors’ returns and asset managers’ profits
Complex, fragmented supply chains and layers of cost eat into profit margins and investor capital – cost is the biggest destroyer of value in the long-term
Newer generations of investors want a seamless digital experience, low cost and rapid settlement
See the full report on Global Fund Flows from Calastone here
