Insights & Reflections from London Climate Action Week 2019

July 2019

London Climate Action Week (LCAW) from 1-8 July 2019 gave the platform for a plethora of events staged by a spectrum of different actors and stakeholders. This provided an opportunity to reflect on the UK and the global landscape: on where we are right now in terms of tackling the climate emergency; and, just as importantly, what more needs to be done.

The existence of the first ever LCAW was in itself a statement. It probably represented, at least in part, a view that it is essential to speed up the British and international response to climate change, against the backdrop of the growing anxiety about what the science and multiple extreme weather events around the world are telling us. Society – epitomized by the school strikes and Extinction Rebellion’s radicalism – is responding in ever-increasing waves. The extraordinary explosion in the growth of renewable energy over the last decade has provided hope for a cleaner, low-carbon future. The adoption of a “climate emergency” and the 2050 net-zero goal by the UK Parliament is also a substantial policy response in this country. This accelerates the UK’s current target of cutting emissions by 80% in 2050 compared to 1990 levels, a goal enshrined in the 2008 Climate Change Act. The UK’s new target is “net-zero” by 2050. But a feeling at the start of LCAW that policymakers, investors and companies are still not acting with the due urgency and ambition has not gone away, despite the collective commitment, energy and creativity that LCAW inspired.

Taking stock, it seems to us that the waves of societal actions are now making fundamental demands of governments and the private sector (or, in shorthand, the “market”).One of the landmark events for the UK Government during LCAW was the launch of the Green Finance Strategy. This strategy has been more than 12 months in the making, following the report from the Green Finance Taskforce in April 2018. Looking at the strategy’s contents, there are some welcome measures, viz the establishment of the Green Finance Institute and mobilising green finance for home energy efficiency. But the threat to regulate on the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD) by 2022 feels too much like a compromise between those who want action now and those who still feel uneasy about regulating in this area. More generally, while the introduction does convey the necessary sense of urgency, the overall package of measures feels underwhelming and a bit “last year”.

This leads on to a wider point we picked up at various LCAW gatherings: the need for government across the board to be consistent in its policymaking if it really is serious about acting on the climate emergency. This requires those responsible in differing government departments – especially climate and finance – and regulatory positions to be co-ordinated and not create gaps or vacuums which leave business and investment uncertain about the direction of travel. Whitehall seems, for example, relatively joined-up on green finance: can the same be said about its approach towards carbon pricing?

However, the market must not be given a free pass either. A key reflection from LCAW is that UK government has already put in place frameworks that should encourage investors to step up and seize the opportunities that the transition is offering. There is more than enough evidence available right now on the economic tipping points for renewables (positively) and for coal (negatively), but many investors are still proceeding overly cautiously.

All that said, we should note that it was a successful week for the divestment movement: witness announcements from organisations such as the Royal Society of Arts, the Royal College of Emergency Medicine and the National Trust that they will divest from all fossil fuels in their portfolios. In other notable news during LCAW which may be a sign of things to come, the London Stock Exchange announced – in a move designed to distinguish between carbon-intensive companies and greener producers – that they are reclassifying oil and gas companies into a non-renewable energy category

In conclusion, we believe there are some over-riding lessons that need to be applied:

  • for policymakers and regulators: they should not allow finance and investment to cite policy gaps or mixed messages as an excuse not to act now on climate and sustainability;
  • for the market: they cannot leave it all to governments. There is competitive advantage to getting out ahead on this agenda. Yes, the politics are difficult (Trump, Saudi Arabia, Brazil, Brexit, etc.). But the science is uncontestable, and leaving behind the niche domain of environmental periodicals for the BBC news headline and FT financial analysis. Furthermore, the evidence that low-carbon will be the growth story of the 21stcentury is accumulating; and
  • finally, investors who are not yet comprehensively addressing climate-related risks and opportunities in their portfolios, and are inadequately preparing for the transition, are going to be in for a surprise when they wake up one day and find that the world has become a very different place – it’s called the Future.




The Role of Pension Funds in Addressing the Low-Carbon Transition: Key Takeaways from Chatham House Meeting, 1 July 2019

On 1 July 2019, as part of the UK’s inaugural London Climate Action Week 2019, Sustineri, Pensions for Purpose and The Prince’s Accounting for Sustainability Project (A4S) co-hosted a roundtable at Chatham House. The purpose of the gathering was to highlight major challenges and discuss pragmatic solutions in the UK pension fund industry in order to help drive systemic change in addressing climate-related risks and opportunities in pension portfolios. We convened senior representatives from Local Government Pension Schemes (LGPS), occupational pension schemes and the policy/regulatory community – including a keynote speech from Parliamentary Under-Secretary of State for Pensions and Financial Inclusion, Guy Opperman, and scientific insights from Professor Jim Skea, Chair of Sustainable Energy at Imperial College and Co-Chair of the IPCC Working Group III.


In a rich and varied discussion, policymakers heard from pension funds about what would help them to deliver on the climate goals. Pension funds also heard from government about what they can do to enable us to reach our common goals.

The key takeaways from the discussions were:

  1. Climate change poses a systemic and material risk to portfolios

The science is clear and irrefutable. It is vital for trustees of pension funds to address climate risk as part of their fiduciary responsibility. Climate change should not be treated as something separate, but should be assessed with equal importance to other economic risks. Recent regulatory changes have underlined the expectation that climate risk is treated as a financial risk, but this is not universally acknowledged among pension funds.

  1. Pension funds are responding, but more urgency and awareness is needed

A growing number of pension funds are addressing climate risks for example through low-carbon funds, investment exclusion polices and TCFD-aligned disclosure and reporting. However, participants noted that many trustees are not ‘climate competent’ or aware, putting their portfolios at risk.

  1. Investing to achieve net zero emissions by 2050 while building in resilience to address physical risks

Reducing the carbon exposure of funds, and testing whether portfolios are consistent with limiting the increase in global average temperatures to 1.5 degrees, is important. At the same time, pension funds need to invest in resilience to protect their investments from the physical risks of climate change as far as possible. These two goals can be mutually reinforcing.

  1. UK’s 2050 net-zero target

Participants welcomed the UK Government’s 2050 net-zero target. But investors need a joined up response across government, with policies adopted in the near term to help deliver that target, such as a coherent renewables policy and stronger carbon pricing.

  1. The need for policymakers and regulators to be more joined up

LGPS and occupational pension schemes are currently governed by different government departments and regulatory regimes, and would benefit from a more consistent policy approach. In addition, there was a view that there needs to be coordinated action across each relevant regulator covering business and the wider financial community, for example around reporting requirements along the investment chain.

  1. Opportunities of the transition

Pension funds should focus on the opportunities arising from the transition to a low carbon economy, as well as the risks. This includes a recognition that private markets are becoming more important for investors (taking into account the challenges that private markets pose, such as a lack of transparency).

  1. Looking beyond carbon and energy

The low-carbon transition is not just about the carbon and energy sectors. There will be impacts on other sectors such as the heavy industry and automotive sectors, land use and agriculture (note the IPCC will be publishing a special report on land use and food security in the autumn). More guidance is needed to help pension funds understand and respond to risks and opportunities in these sectors.

  1. The collective strength of pension funds

Pension funds have real power to influence other actors in the investment chain on the low carbon agenda, including asset managers and investment consultants. This influence is significantly enhanced when collective action is taken and pension funds share insights with one another. Market signals from investors matter, including on engagement such as shareholder voting at AGMs.  In addition, pension funds should demand more granular reporting and transparency on climate-related risk factors from their investment/asset manager at fund-specific level.

  1. Challenges when investing in pooled funds

Specific challenges exist for pensions investing primarily in pooled funds, with trustees finding that they are unable to influence the engagement and voting policies of funds in which they might be invested.

  1. Importance of civil society action

Civil society is mobilising on climate change, as evidenced by the school strikes and the rise of Extinction Rebellion. Beneficiaries (although many need to get further engaged) are also attaching greater importance to where pension funds are investing their money. Investors and companies who lag behind are increasingly vulnerable to being called out for inaction.

Please refer to the Minister’s speech here.

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Sustineri at London Climate Action Week 2019

July 2019

As part of the London Climate Action Week, on 1 July, Sustineri, Pensions for Purpose and The Prince’s Accounting for Sustainability Project (A4S  co-hosted a roundtable discussion at Chatham House on The Role of UK  Pension Funds in the Low-Carbon Transition. Representatives from local government and occupational pension schemes, and the policymaking and regulatory community, took the opportunity to discuss how they can individually and collectively respond to the climate emergency, addressing the challenges, risks and opportunities that it presents.
Key guest speakers were Guy Opperman, Under-Secretary of State for Pensions and Financial Inclusion at the Department for Work and Pensions (DWP), and Professor Jim Skea CBE FEI FRSA HonFSE, Chair of Sustainable Energy, Imperial college and Co-Chair IPCC Working Group III.
The Minister’s remarks – which addressed head-on the actions that pension funds and trustees can take, the power that they possess to drive change, and the “massive role” they have in terms of the transition – can be accessed here.
The co-hosts of the event also captured and distilled the key takeaways of a rich and varied discussion. Under the Chatham House rule, there are no remarks individually attributed. The tenor of the interventions around the table was that climate and the transition are being taken seriously, but that much more needs to be done – especially against the backdrop of the growing urgency of the challenge – and that, for their part, pension funds would welcome a more coherent approach across Whitehall on this agenda that also connects with the wider ecosystem.
As a backdrop for our discussion, Sustineri and A4S published a joint article in the FT’s Pensions Expert on the vital role of pension funds in addressing the transition – here.


For any questions, please do not hesitate to contact the partners of Sustineri.


Merseyside Pension Fund: Future-proofing its Responsible Investment Strategy

January 2019

Sustineri is pleased to announce that we have successfully completed an initiative with Merseyside Pension Fund (MPF), a large Local Government Pension Scheme in the UK.

This exercise involved working with a variety of internal and external stakeholders, with the objective of reviewing the schemes’s Responsible Investing strategy to future-proof their broader investment strategy. We hope that the emphasis throughout the whole process on strengthening investment beliefs through engagement and inclusivity can act as a model for when other pension funds (public and private sector) come to revise their responsible investment strategies, an agenda which is becoming increasingly important and material for asset owners.

Details of our report and recommendations can be found on the Merseyside Pension Fund website – here.

Now is the time for the EU to show international climate leadership

The Leadership Vacuum

COP 24 has just begun in Poland and will finish on 14 December. There is a vacuum of leadership internationally on climate change right now. The US is occupying the place of Camus’s “The Outsider”.

Moreover, it’s still not clear, for all their domestic action on the environment and their burgeoning renewables sector, whether China is really prepared to don the mantle of a global leader. Ever since China became a super economic power, this question of global stewardship has circled uneasily above them. There are in fairness good reasons to argue that China is steadily moving towards being a global leader on climate and clean energy: witness for example their recent publication on Green Investment Guidelinesis seen as a game changer for ESG adoption by Chinese asset managers, and there is the sense they will want to go further on this agenda.

But it’s not clear if China’s leadership can at this stage summon up the political will to step up without reservation. So that leaves Europe as the only feasible contender right now properly to fill the vacuum.But can the EU seize its chance?

The Glass Half-Empty

From a glass half-empty perspective, the auspices are not good. First, Germany is no longer showing the leadership that it did when Merkel was once called the climate Chancellor. Dieselgate, and the German Government’s half-baked response to it, was something of a watershed for German environmentalists. Since then, the administration has continued to prevaricate over whether it can set a date to phase out coal; and the finger has been pointed at the Germans for not supporting sufficiently strong CO2 limits on cars and vans.

Poland also continues to lead the awkward squad from eastern Europe. They may be about to host (bizarrely) their third COP in a decade, but this is a country that still depends overwhelmingly on coal power for its electricity and has been crying foul about the startling rise of the EU carbon price over the last 18 months. The faultlines – along a broad western/eastern European split that has been in place for a long time – of European climate change policy have not faded away.

To compound Europe’s difficulties on climate, on present plans the UK is leaving the EU on 29 March next year. Whatever the increasingly fraught politics and the rights and wrongs of the 2016 referendum, a lot of European policymakers (in Brussels, Berlin, Paris, The Hague, the Scandinavian capitals) say quite openly how much UK expertise and commitment on climate change policy will be missed. At a time when European climate leaders need to come to the party, the Brits are heading for the exit door and won’t be able to exert the same influence from the outside.

The Glass Half-Full

On the other hand, to look at it through the glass half-full, there are some promising signs. Perhaps the most significant is the push coming from the European Commission on a longer-term goal. Last week, as promised, the Commission’s Climate Commissioner Canete published  the Commission’s long-term strategy for a climate neutral economy by 2050. Under the shadow of the recent IPCC 1.5oC Special Report, the Commission emphasizes its concern about the impacts of climate change, such as flooding and drought, on Europe (physical impacts are often overlooked in the European context, compared with the focus on developing countries). The communication does not propose any new policies or targets for 2030; rather, it considers – through a number of scenarios and building blocks – the longer-term direction of travel and how Europe can contribute to meeting the Paris Climate Agreement targets in line with the Sustainable Development Goals (SDGs), recognizing that the existing 2030 targets are insufficient to achieving Paris outcomes.

There is nothing new in the analysis and policy detail of this communication, but it is in our view significant for two reasons:

  • It contains the strongest linkage to date that the Commission has made between climate change and the finance and investment agenda, making a point of highlighting the Commission’s Action Plan on Sustainable Finance. (NB: we analyse European progress on sustainable finance further on in this article);
  • its concluding remarks about the EU’s global leadership, where it talks about “leading by example”, “enhancing its energy and climate diplomacy”, and “stepping up its efforts, leading worldwide”. These are statements which are now on the public record.

Having published the strategy to delineate a roadmap for 2050, the challenge for the Commission next is to secure the support of EU member states. The latter are in the process of submitting their draft national climate and energy plans (NCEPs) which will be central to achieving the 2030 goals. The strategy itself will then be considered during 2019, with the view to it being the foundation of an “ambitious” (the Commission’s word) new nationally-determined contribution (NDC) plan in 2020 under the Paris timetable, while also expanding international co-operation in this period.

It is worth recording the doubts about the Commission’s ability to deliver over the next 12 months since, following the EU parliamentary elections in May, the Juncker Commission will step down next summer. Juncker and Canete in particular have therefore been very aware of their climate legacy, and the newly-published strategy is therefore a good opening shot. But they will now have to sell this – above all to member states.

There remain, as we have detailed above, doubts over the political will of some EU member states; however, there are positive developments too. France, despite Macron’s evident domestic difficulties (which we should acknowledge are in part linked to his energy and climate policies), have grasped the baton of prime EU climate power that Germany and the UK are passing on.  Paris 2015 clearly sealed the deal, but the French have continued to press on: they have been at the forefront of linking the European climate and finance agendas; and their corporates and financial institutions are providing the essential private sector support that public policymaking needs.

Other bright lights include Spain, where the new Socialist government has instigated a step-change in its approach towards climate change. Sensibly combining energy and environment under one roof, It has formed a Ministry for Ecological Transition, headed by well-known environmental activist, Teresa Ribeira. Consequently, driven by Ribeira, the Spanish are promoting more ambitious emissions reduction targets, a new climate law, support for solar, and action on coal. As a testament of their new-found pro-activity, Spain have joined a number of northern and western European countries in signing the Carbon Neutrality Coalition, a group or progressive countries  that came together at the UN in New York this autumn. In terms of whether Europe can step up to the plate globally, this grouping could play an important role – and Germany is a member, so maybe there is hope for their domestic ambition yet!

The anti-coal agenda is also becoming more prominent in the European policy debate. The UK Government’s political weakness has not, to its credit, stopped it from driving (in conjunction with Canada) the Powering Past Coal Alliance, a movement of nation states, regions and companies dedicated to phasing out coal power. Although comprising mostly the usual suspects (and of course neither Poland nor Germany), this body is having an impact internationally and its arguments – the impacts of coal on CO2 emissions and air quality; the need therefore for the OECD and the EU28 to phase out coal power by 2030 – are inevitably affecting policy discussion inside the EU. So much so that, even in Poland, the future of coal is being questioned and the new power station Ostroleka C (at present under construction) is now being talked of as Poland’s last ever coal plant. More generally, as the Carbon Tracker Initiative is emphasising in its research, coal generation in Europe seems to be becoming commercially unviable.

There is also the startling rise in the EU carbon price over the last 18 months. Is the EU Emissions Trading System finally going to have a meaningful impact on emissions reduction over an enduring period?

Sustainable Finance Gathers Momentum

By common consent, the EU’s approach in the earlier part of the decade towards sustainable finance lacked intent and urgency by comparison with their front-foot approach towards decarbonisation. But that has changed over the last two years, since Dombrovskis became Financial Services Commissioner.  The step-change came in the establishment of the High-Level Expert Group on Sustainable Finance (the HLEG); the political commitment was left in no doubt when Dombrovskis’s Financial Services Directorate-General followed up the HLEG report this year with an Action Plan which the EU institutions are now in the process of delivering.

There is an important legislative measure in train in the form of a directive concerning disclosure on sustainability risks, notably climate, and investor responsibilities in relation to fiduciary duty. But the most important measure under consideration is the creation of a green taxonomy for Europe. This will be highly relevant to creating an environment which scales up investment in the low-carbon economy. Moreover, despite the departure from office of the current Commission in 2019, the institutions seem right behind pushing through the Action Plan to fruition by the end of 2019. In addition, policymakers are talking about taking the green taxonomy global (perhaps linking with China’s ambitious Green Investment Guidelines?), recognizing that the low-carbon international investment climate needs common standards and a universally accepted language if the challenge of scaling-up is to be met.

This move by European financial policymakers is being reflected by EU central banks and regulators. The Greening the Financial System, bringing together several central banks (mostly from Europe), was launched at the 2017 One Planet Summit, with the aim of strengthening the global financial system’s response to meeting the Paris Agreement goals, to manage risks and mobilise private capital. At last week’s Climate Finance Day – another example of France and specifically Paris leading the way on sustainable finance – some of the European central banks reaffirmed their commitment to this agenda, and how they can help deliver a coherent public/private response that makes the low-carbon transition a reality.

To complete this more joined-up picture, national financial regulators are pushing climate risk higher up their list of priorities. The UK’s Financial Conduct Authority recently launched its first ever consultation on climate change, to complement actions that have been taken in France, the Netherlands and Nordic countries. In addition, there is a sense that some of these progressive regulators are contemplating – depending on how the private sector deals with the climate risk disclosure agenda that has been set by the Taskforce for Climate-Related Disclosures (TCFD) – further strengthening (perhaps even making disclosure mandatory) their national corporate reporting framework on climate change and associated issues.

In Conclusion

 All this combines to present a picture which, even though it would still be premature to say that there is complete unanimity at EU member state level, is one of growing commitment to the low-carbon economy and – crucially – actively using policy frameworks to accelerate the transition. Perhaps the tipping point has been a realization that, to quote Lord Nick Stern, low-carbon is the “growth story of the 21stcentury”.

The question for the most immediate future is if this momentum can convert into political commitment at COP 24 in Katowice over the next two weeks. This latest gathering is being described, correctly, as the most important COP since Paris 2015. This is primarily because of the aspiration (which will probably be unfulfilled) to agree the Paris rulebook at Katowice, especially in terms of how to measure progress against NDCs. However, beyond the technical discussions, the goal of cementing the political conditions for greater climate ambition into the next decade is in reality the prize. At a time, when these international negotiations are looking somewhat wobbly, it is time for Europe to cast aside its divisions and size the opportunity that global leadership can provide.


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