Originally published in Environmental Finance.
It was an honour for us to undertake our second leadership rotation of the global Climate Action 100+ Steering Committee, the world’s largest investor engagement initiative focused on climate change.
The world has changed significantly in the years since our first rotation in 2019. Since the initiative launched, it has played a key role in bringing engagement and stewardship on climate issues into the mainstream.
We’ve seen an explosion in net zero commitments from governments, companies and investors (although delivery is still yet to be seen on a large scale). And there has been a huge step in global collaborative efforts to try and limit global warming to 1.5°C.
This leadership rotation was punctuated with a mix of anticipated and wholly unprecedented events.
One month in, we went to Glasgow for the long awaited COP26 conference, a momentous global gathering focused on tackling the climate crisis. A few months later, the IPCC published another urgent wake-up call for action now with its sixth assessment report focused on adaptation and resilience. And Russia invaded Ukraine, starting a deplorable and unjustified war that has sparked a global energy crisis, which threatens to divert attention away from delivering the net-zero transition at the pace and scale needed.
These real-world events continue to shape the backdrop against which investors engage with companies as part of Climate Action 100+. But tackling climate change is too urgent, too important and too devastating to be deprioritised.
Having passed over the reins to our colleagues in Asia now, we have spent some time reflecting on our time as chair and vice-chair of Climate Action 100+.
Reflection 1: Global collaboration holds the key to enabling net zero
There were many outcomes from COP26 – some heralded as huge successes, others seen as lacking ambition. But if you look at what happened during the conference, one of its greatest achievements was to reinforce the importance of global collaboration between different stakeholders – governments, companies, investors – and of showing leadership.
These groups have a vital role to play in accelerating the net zero transition and must work in tandem if we are to bring along the whole system at the speed required.
We understand that global cooperation between policymakers is a challenge and at times, it can look unlikely or uncertain. But investors must seize the opportunity to step forward and focus on delivering the change that can be achieved in the private sector by engaging with greenhouse emitters and pushing them to decarbonise faster.
Reflection 2: We must stay focused on our long-term climate goals
It’s important to recognise that corporate engagement is focused on real-world outcomes. At the moment, following Russia’s invasion of the Ukraine, the world – and Europe in particular – is facing energy security challenges and a cost-of-living crisis.
This context reminds us of the need to be nimble and respond to what is taking place around us. Governments, investors and companies are taking measures in the short term to best mitigate the adverse effects of the war and its impact on critical energy supplies.
But it’s critical this does not come at the cost of locking in extra capacity of oil, gas and coal that is counterproductive to achieving international climate goals.
On the whole, we have seen positive coordinated action from European governments to move away from reliance on Russian oil and gas. But we must remember fossil fuels are still fossil fuels, wherever they come from.
Last year was significant with the publication of the IEA’s Net Zero by 2050 scenario, which has given the world a much clearer pathway to net zero. We must stay focused on delivering against this pathway and on the short- and medium-term decarbonisation needed, alongside delivering on energy security and affordability. Pitting these against each other is a false dichotomy – the reality is we must address these challenges simultaneously.
Reflection 3: Translating commitment into action is hard, but imperative
The focus in the investor community over the last year and a half has been tracking how companies are delivering against their climate commitments – action, as opposed to words.
“We must stay focused on delivering against this pathway and on the short- and medium-term decarbonisation needed, alongside delivering on energy security and affordability. Pitting these against each other is a false dichotomy – the reality is we must address these challenges simultaneously”
Defining these pathways for action is hard. But the increase in the number of transition votes and the recent launch of the UK’s Transition Plan Taskforce show companies seeking to set out their plans and investors increasingly having the opportunity to vote on these.
There also has been significant progress made by corporate emitters over the last few years, even if there is still some way to go. The March 2022 Net Zero Company Benchmark assessments showed that over 110 focus companies have set net zero by 2050 targets, compared with just five before the initiative launched.
We are focused on providing investors with multiple tools to support their engagements and drive faster corporate decarbonisation. All of this activity is cementing the role of engagement as a critical lever in reaching net zero.
But designing a net zero framework is challenging and the level of detail that needs to be developed is considerable. One area that requires critical focus now is the demand side of sector decarbonisation.
Reflection 4: Constraining supply and demand must go hand in hand
Whilst much of rhetoric around getting to net zero can often focus on reducing emissions of supply, the reality is we must also reduce demand.
This will not be an easy or quick fix. We need to look at interconnectivity between sectors and how this will affect demand and supply signals. If we can increase demand for certain products within key demand sectors that help to lower emissions – whether that’s green steel or sustainable aviation fuel – this will have a knock-on effect on the demand for products we need to see decline in other sectors, such as the supply of oil and gas.
It will require extensive work across value chains and cross-sector collaboration. This needs to become a priority engagement topic for investors engaging in hard to abate sectors.
This focus builds on the initiative’s existing global sector strategies workstream, which facilitates collaboration between companies within sectors. But we want to go further than connecting the different parts of the value chain for one sector – driving material change will be achieved by connecting the value chains across entire sectors.
Reflection 5: Regional nuance is critical to effective engagement
There will be no climate solution without the participation of all regions. The rotation of the Climate Action 100+ Steering Committee ensures our work is truly global and reflective of regional nuance, which is critical to the initiative’s current and ongoing success.
It also enables us to consider key differences in the net zero corporate engagement landscape across different markets. Policy and regulation play a critical role in company strategy. We know that engagement is more effective when it is carried out with a regional focus, which is why the initiative is coordinated by five investor networks focused on different parts of the world.
As a global Steering Committee, we are focused on the initiative’s long-term strategy and how we take ideas and learnings from the first five-year time horizon into the next phase, to drive faster decarbonisation of the world’s largest corporate greenhouse gas emitters. Fundamentally, there is always room for improvement – but there can be no net zero without corporate engagement.
Stephanie Maier is global head of sustainable and impact investment at GAM Investments.
Stephanie Pfeifer is CEO of the Institutional Investors Group on Climate Change (IIGCC).
Maier and Pfeifer were chair and vice-chair, respectively, of the Climate Action 100+ global Steering Committee from 1 October 2021 to 31 March 2022.