Over the past 10 years, environmental, social, and governance (ESG) investing has moved from a specialized pursuit into a mainstream activity. The relationship between ESG and investment management goes back over three decades and can be traced through the development of voluntary, cross-sectoral, non-governmental ESG-related reporting initiatives that started with the Global Reporting Initiative (GRI) standards, first published in 1997, which have since been followed by numerous competing models such as the Sustainable Accounting Standards Board’s standards and the Climate Disclosure Standards Board framework.
In the two weeks from October 31 through November 13, 2021, over 25,000 delegates from nearly 200 countries, including 120 heads of state, business leaders, activists, and non-governmental organizations, met in Glasgow, Scotland, at the 26th Conference of the Parties to the UN Framework Convention on Climate Change, better known as COP26.
While the summit failed to achieve all its stated goals, it did conclude with an agreement that will define the global agenda on climate change for the next decade.
Following closely on the heels of the release of the Sixth Assessment Report of the Intergovernmental Panel on Climate Change that UN Secretary-General António Guterres referred to as “a code red for humanity,” the importance of COP26 could not be made clearer.
Broadly, COP26 continued to build on the landmark 2015 Paris Agreement, culminating in the Glasgow Climate Pact, which included several key points:
In addition to the final overall statement, several additional pledges were made by governments and multilateral coalitions including:
In support of these goals, several investor-led announcements were also made:
Across several sectors, additional pledges were made across industries as diverse as shipping, automotive, health care, fashion, aviation, chemicals, and materials.
Despite all the positive movement in the commitments made, the notable absences of China and Russia left any global commitment short of the full backing required for true climate action as they are the first and fourth-largest greenhouse gas emitters. Furthermore, countries such as India who rely heavily on coal for energy were not part of the coal pledge and negotiated the final statement down from “phasing coal out” to “phasing coal down,” leaving open the option for countries to continue using coal.
While many commitments were made and many headlines written, the closing statement from Secretary-General Guterres highlighted the gap between what was done and what remains to be done. He reaffirmed the need to end fossil fuel subsidies, phase out coal, put a price on carbon, protect vulnerable communities, and deliver the $100 billion climate finance commitment.
But Guterres concluded his comments on a positive note. The Secretary-General appealed directly to the youth, activists, indigenous communities, women leaders, and all those leading the charge on climate change. He acknowledged their disappointment with the failure of COP26 to achieve all of the summit’s goals, but stressed that “the path of progress is not always a straight line.”
The commitment of the global financial industry to focus on mitigating climate change will undoubtedly continue to evolve and accelerate further shifts in the already rapidly evolving ESG regulatory landscape.
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