PLSA ESG 22: COP26 authenticity gap leaves financial sector in 'tricky situation'

The authenticity gap between the reality and ambition of climate change commitments made at COP26 could place the financial sector in a "tricky situation", Brunel Pension Partnership chief responsible investment officer, Faith Ward, has warned.

Speaking at the PLSA ESG Conference 2022, Ward stated that COP26 had been "very positive" in terms of making progress.

In particular, Ward highlighted the commitment for all countries to revisit their current emissions targets in 2022 as a particular victory, as well as article six, which she noted was "an incredibly important sticking point" at previous conferences.

Ward also suggested that this progress should not really be a surprise amid "a year of fire flood famine and pestilence", arguing that the "realities of what a world might look like from climate change were very much laid bare".

She said: "It very much came down to political will, and that political will does really reflect some of the social and economic realities of the challenge we’re facing, which is quite demanding in terms of how do we get to net zero."

However, Ward clarified that even if everyone did everything committed to at the global conference, this would only limit warming to 1.8 degrees, whilst the official pledges would result in a 2.1 degree outcome, and the policies that are actually in place would only limit to 2.7 degrees.

Ward warned that this means there is "still a significant implementation gap", suggesting that "the pressure on the finance sector to continue its leadership role is not abating" and is "quite immense".

She continued: "At the moment there is an authenticity gap between the commitments and reality. I think it’s for us investors, but also the wider community, to hold to account those who represent us and ask for more courage, because we are going to need that if we are going to deliver on these commitments."

Ward also suggested that this authenticity gap could leave finance sector in "quite a tricky situation", because it is increasingly being looked to to take the leadership role.

"Our role is to work with policy makers, and I'm still not entirely comfortable with the balance as to who's doing what why and when," she explained.

"We need to make sure our policy makers don’t leave us stuck out there on our own, because I think there is still quite a lot of pressure on us to come up with a lot of the answers, and I think that might not be appropriate."

However, Ward suggested that the TCFD framework can represent a really good way for pension scheme trustees to "start getting their head around these issues", also urging trustees to look at those physical and adaptation resilience of their own portfolios.

"My plea is not to forget about the physical adaptation components," she added, "because people are very focused on mitigation, but we also need to think about physical resilience, even in a 1.5 degree world."

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