Published in Business Green 1st December 2020<\/em><\/a>
\n<\/strong>
\nThe finance sector has the means, and the scientists have the data, to
\nmodel interventions with much greater impact than we see today, explain
\nFederated Hermes’ Eoin Murray, and Tim Lenton from the Global Systems
\nInstitute.<\/p>\nOf President-elect Joe Biden’s many campaign commitments to address
\nthe climate crisis, the most significant is the United States re-joining the
\nParis climate agreement. Climate change is a global issue and requires
\nan international response, and American leadership is critical to success.
\nBiden’s win may therefore come to be seen as a tipping point in the
\nhistory of action on climate change.<\/p>\n
Tipping points are normally used in climate science to describe small
\nchanges in the earth system that result in much broader, often damaging
\nimpacts that accelerate climate change. Well-known examples including
\nsea level rise resulting from the disintegration of the Greenland and West
\nAntarctica ice sheets, or the release into the atmosphere of
\nclimatewarming methane deposits from thawing Siberian permafrost.<\/p>\n
For many years, researching and understanding these tipping points
\nunderlined the urgency of climate action. Today it is widely understood
\nthat we need to decarbonise the economy, and to do this rapidly. Right
\nnow, we need tipping points in the other direction – small interventions
\nthat accelerate large-scale reductions in greenhouse gas emissions.<\/p>\n
We have already witnessed many of these positive tipping points and
\nhave learned much about how they function. So far, it is the
\ngovernments who have produced the most effective ones. Section 172
\nof the UK’s updated Company Act, for example, requires businesses to
\ndisclose material risks from the long-term impacts of their activities on
\nthe environment. An escalating tax on carbon emissions has brought
\nabout a collapse in coal’s share of the UK power mix, from 40 per cent
\nto just three per cent in six years. These policy interventions are
\nimportant, but we cannot regulate our way out of the climate emergency.
\nUnregulated positive tipping points are also necessary.<\/p>\n
The transformation of the power sector is taking place due to the
\neconomics of technological innovation. The first tipping point arrived
\nwhen renewable energy started producing electricity more cheaply in
\nsome places than fossil fuel-burning power plants. The next will come
\nwhen the costs of building new wind or solar capacity become cheaper
\nthan a new coal or gas plant. The entire power sector will have tipped
\ntowards full decarbonisation when the cost of new renewable power
\nbecomes cheaper than maintaining existing hydrocarbon power plants.<\/p>\n
Tipping points can also occur with changes in people’s behaviours. The
\ntrend towards plant-based diets in the food sector is one example, or the
\ncollapse in demand for air travel that could potentially outlast coronavirus
\ntravel restrictions. Changes in public opinion however can be much more
\ndifficult to orchestrate than policy or economic interventions.<\/p>\n
This is why the finance sector is critical to action on climate change.
\nSince capital touches every facet of economic decision-making, from
\nproject finance to portfolio allocation, the quickest route to success is the
\ngreening of money.<\/p>\n
More and more shareholders recognise their role in shaping these public
\ngoals. They actively engage with management on corporate climate
\nstrategies. Institutional investors, who have a responsibility to mitigate
\nsystemic climate risk, increasingly back climate-related shareholder
\nresolutions. One pension fund was mandated by the courts to consider
\nclimate risks in its investment strategy. It responded by setting a net-zero
\ntarget for financed emissions by 2050.<\/p>\n
But are these really tipping points? Could the finance sector deliver more
\nfor climate action? If bankers and fund managers knew where and when
\nto invest to tip the low-carbon disruptors businesses towards exponential
\ngrowth, then finance could have a key role in accelerating climate action.<\/p>\n
Understanding these tipping points, and engaging with companies to
\ncapitalise on them, would bring outsized returns to both shareholders
\nand citizens.<\/p>\n
The reality of day-to-day business may prove more challenging to predict
\nthan the future of the climate. But the finance sector has the means, and
\nthe scientists have the data, to model interventions with much greater
\nimpact than we see today. Given the limited time available to stop
\nclimate change, we must all work together to prioritise these new
\nmodels.<\/p>\n
Eoin Murray is Head of Investment at Federated Hermes International,
\nand Professor Tim Lenton is Director of the Global Systems Institute at
\nthe University of Exeter<\/p>\n","protected":false},"excerpt":{"rendered":"
Professor Tim Lenton, GSI & Eoin Murray, Federated Hermes Published in Business Green 1st December 2020 The finance sector has […]<\/p>\n","protected":false},"author":445,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[13,25],"tags":[35,39,55,63,73,125,127,133],"acf":[],"yoast_head":"\n
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<\/p>\n