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Climate goals: Rhetoric vs reality

climate_changeA recent study by the Rainforest Action Network claims that in the five years since the Paris Agreement, the world’s biggest banks – including the likes of BNP Paribas, Goldman Sachs, and JP Morgan – have financed fossil fuels to the tune of $3.8 trillion (€3.2 trillion).

Impact investment firm ThomasLloyd’s chief executive Michael Sieg, speaking in Funds Europe’s April issue, has pointed out that while large banks and global financial institutions like to highlight how sustainable they are on their websites, “the reality is unfortunately different”.

The vast sums of cash committed to financing coal plants by banks and institutions that have signed up to the Paris agreement, he said, highlights the “brutal” gap between climate theory and practice.

“We give our money to banks, pension funds and insurance companies to save and procure for our future and they do the exact opposite,” Sieg said.

The EU’s Sustainable Finance Disclosure Regulation (SFDR), which came into force in March, aims to put a stop to so-called ‘greenwashing’, but some commentators question whether it goes far enough.

For Dr Andy Sloan, deputy chief executive of Guernsey Finance, the granular nature of SFDR – and the fact that people talk about net zero as if it’s already happened – “undermines the cause” when it comes to climate change.

“In principle, SFDR is a good idea, but it will be over-engineered,” he says. “With SFDR, you end up going down a similar road to MiFID II.”

According to Sloan, overcomplicating the transition to net zero with other factors – such as social issues – ultimately creates harder work for firms in the process and detracts from the crucial goal of saving the planet.

“At the end of the day, it ought to be simple. It’s about climate change, it’s about carbon,” added Sloan. For him, the fundamental issue is whether a portfolio is contributing to climate change mitigation or not.

Analysis by the Imperial College Business School found that renewable energy companies outperformed their fossil fuel counterparts with both higher returns and lower volatility over the past decade.

The total return for a hypothetical global portfolio made up of 208 renewable energy companies exceeded 422%, compared to 59% for the 545 fossil fuel firms analysed.

Despite this outperformance, a large disparity remained between government targets and the total investment in renewables, the report concluded.

Read the full article on SFDR and greenwashing here: ESG: Green, greener, greenest...

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