Authors: Rob Anderson & Carlos Galvan
The current energy transition is focused on decarbonisation at a global level; reducing carbon emissions and ensuring climate stabilisation by moving from fossil fuel sources to zero carbon fuels by the second half of this century. The shift will be enabled by a combination of policy frameworks, market instruments, innovation and technology.
Financial institutions have increasingly recognized the role they have to play through transparency, reporting, and disclosure in tackling some of the world’s most pressing issues. Such responsibilities have never been more front and center on the global stage than they are now in relation to climate change.
In late 2020, the Equator Principles 4 (EP 4), a framework to assess Environmental, Social and Governance (ESG) risk in projects was released. This recognizes financial institutions must honor and further the outcomes of the 2015 Paris Agreement, as well as make efforts to improve the availability of climate-related information by adopting the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
Climate risks are now receiving the same attention as other material financial risks. However, the financial sector is not the only harbinger of the rising tide of climate change risk and opportunities. Governments around the world are also sending strong signals that climate must be top of policy, corporate, and even individual agendas.
Currently, the UK is ramping up its climate policy as it prepares to host COP26 in Glasgow this November. As part of its bid to lead by example, Prime Minister Boris Johnson announced a 10-point Climate Plan in November 2020, which was followed by an announcement in December that the UK’s carbon reduction target will increase from 53% to 68% by 2030. Highlights included: producing enough offshore wind to power every home (quadrupling current output), investing in hydrogen as a clean fuel source for use in industry and transport, investing in small-scale nuclear, and restoring nature. Full list available here.
The UK Government signaled to the market that the days of the internal combustion engines are numbered. Petrol and diesel car sales will be outlawed by 2030. The UK has also announced it will increase the reporting requirements for large, UK-listed companies in line with TCFD. The stricter requirements are set to come into force in 2022 and be introduced for a wider range of companies by 2025. Pension fund trustees are also aligning with TCFD and British Members of Parliament criticized the Bank of England for failing to attach any carbon reduction requirements to corporate bailout funds during the COVID-19 pandemic.
Momentum in the UK for climate action is certainly building a head of steam, as it is in other parts of the world, but nowhere is that more evident now than in the US. Newly seated President Joe Biden has committed to taking a whole-of-government approach to tackling the climate crisis and is in the process of implementing an ambitious agenda to achieve a 100% clean energy economy and reaching net-zero emissions no later than 2050. His plan includes making federal investments of $1.7 trillion over the next 10 years into clean energy infrastructure and technology, pausing and reviewing oil and gas drilling on federal land, doubling energy from offshore wind farms by 2030, moving federal government agencies from fossil fuel to clean cars, addressing racial and economic inequities exacerbated by climate change and air and water pollution, and creating millions of new jobs in the renewables energy sector.
Biden’s renewed climate commitment is not only a signal to governments around the world that the US is ‘back in business’, but also an important signal to the private sector that the era of carbon-fuelled profits may be coming to an end. And markets are reacting – only a week following Biden’s inauguration, BlackRock, the world’s largest asset management firm, declared “no issue ranks higher than climate change” and warned it may withdraw investments from companies that fail to commit to net zero emissions by 2050, signaling a “tectonic shift” in the investment landscape. Similarly, General Motors, America’s largest automobile manufacturer, announced a mere day later that it plans to completely phase out vehicles using internal combustion engines by 2035, going completely carbon-neutral at all facilities worldwide by 2035.
As the policy landscape changes, other major corporations and financial institutions are likely to follow suit. Individual shareholders, customers, and clients will not be far behind in signaling for climate action through their purchasing power. It is therefore vital for businesses and organizations to understand the climate momentum and clean energy transition that is taking place globally by developing their own plans for climate action.
There are different ways in which businesses can navigate this transformative period, including:
- Seek advice on the latest climate and energy-related requirements to ensure compliance and best practice.
- Comply with reporting standards, such as EP4 and TCFD.
- Identifying material physical and transition risks, including developing measures to reduce or eliminate risks and enhance potential opportunities.
- Undertaking greenhouse gas (GHG) calculations and carbon assessments.
- Developing sustainability objectives and committing to reporting on progress.
About the authors
Aleksandra Taskovic, SLR Senior Consultant
Aleksandra works in the Environmental, Social and Governance (ESG) team at SLR Consulting. Her work focuses on international environmental and social impact assessments and due diligence, ESG strategy and reporting, and climate change and resilience projects across the extractives, power, renewable and infrastructure sectors. Aleksandra has experience on a wide range of social topics including human rights, labor and working conditions, gender and diversity, resettlement and livelihood restoration, and stakeholder and community engagement. She has experience undertaking primary and secondary socio-economic data collection, including devising and undertaking culturally appropriate interviews and focus-group discussions and engaging with key stakeholders and project-affected communities. Aleksandra’s ESG experience is truly global, having worked in over 20 countries and jurisdictions.
Sam Gill, SLR Principal Climate Change Consultant
Sam is part of the Global Climate Change team at SLR. He works with clients to assist them in understanding the risks and opportunities associated with climate change, as well as to provide strategic advice on Task Force on Climate-related Financial Disclosures (TCFD) reporting requirements.
After beginning his career at Google, Sam held the position of CEO at Engaged Tracking Foundation – a not-for-profit organization that ranked the world’s largest companies by greenhouse gas emissions. He subsequently, co-founded Engaged Tracking, an advisory firm providing carbon emissions data and climate risk analytics to the financial services industry. During his time at Engaged Tracking, Sam worked with institutional investors to help them identify, understand and manage their climate risk exposure.