From the climate lawsuit against Shell to the role of fund managers in saving the earth, Laura Clarke, CEO, ClientEarth, shares it all.
Funds Europe: Where does the UK stand on the global map when it comes to leveraging finance as a force to drive positive climate action?
The UK scores well on ambition and has set in train some impressive initiatives in recent years. The country has historically been in the vanguard of mandating climate-related financial disclosures, particularly for pension schemes, asset managers and listed companies.
Most recently, the UK reiterated in its 2023 green finance strategy the government’s commitment to the green taxonomy, transition planning – and the potential extension of this to large companies – and the Taskforce on Nature-related Financial Disclosures. This is all hugely welcome. You may have sensed a ‘but’ coming, and there is one- ambition risks being squandered if the UK’s regulators do not enforce existing standards.
Regarding product labelling and sustainability disclosures, the FCA deserves special commendation for its proposals which address some of the unresolved fundamental issues in the EU’s sustainable finance regime. However, there is a real risk of the US, EU and others outpacing the UK if regulators do not get a grip on enforcement. This is the case for greenwashing, where UK regulators have been notably quiet compared to international counterparts like ASIC in Australia, the SEC in the US and BaFin in Germany.
Funds Europe: ClientEarth recently filed a lawsuit against Shell’s board over mismanagement of climate risk. What is the latest update on this case?
Funds Europe: How is climate litigation driving just transition?
Climate litigation makes the need to change real and immediate. When successful, it requires an immediate remedy, whether that’s a new policy or business plan. Additionally, it has a role to play in highlighting the needs of the most affected groups and delivering remedies for them. But the benefits go wider than in the individuals affected and the government or business concerned: litigation can set a precedent that others then need to follow and raises awareness – both amongst those who might use the law to safeguard their rights and those who change their policies and behaviours to avoid similar litigation.
Funds Europe: Have asset managers become more proactive in pursuing sustainable finance strategies?
Asset managers are alive to the demand for sustainable financial strategies from their clients, which has been driven by the increasing emphasis on financially material ESG risks. Looking at how these strategies are marketed, you can see more and more under the ‘sustainable’ or ESG banner. But, you have to ask what a ‘sustainable’ strategy is. Are we talking about exclusions, like index tracker funds, that don’t include the most environmentally damaging companies? Are we talking about strategies that seek to own a broader range of companies and focus on engagement and voting to mitigate risks or generate positive, real-world impact?
More managers are claiming to offer sustainable products and signing up for initiatives like Climate Action 100+, but more needs to be done. For example, according to ShareAction’s ‘Point of No Returns’ report released earlier this month, almost three-quarters of asset managers had made no commitments to deforestation.
Funds Europe: What can fund managers do differently to tackle the climate crisis?
Fund managers must use the levers they have to drive sustainable business at the companies they invest in. That might be through robust engagement to ensure that all companies have net zero and nature-positive transition plans, backed up by votes against management and for shareholder resolutions where necessary.
That might also be through divestment, where companies fail to transition within expected timeframes. Where funds track indices and therefore divestment as an escalation strategy is less possible, fund managers should focus on offering funds that track indices with exclusions for environmentally damaging companies that refuse to transition. Finally, managers should track litigation against the companies they invest in and hold them to account for their response to that litigation.
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