Keesa: [00:00:01] Welcome to the LSEG Sustainable Growth podcast, I’m Keesa Schreane. Long-time listeners of the Refinitiv Sustainability Perspectives podcast will notice some things are a bit different. Today marks an exciting new chapter for this show. We’ve got a new name and new look! We began this show 3 years ago at Refinitiv, and in the more than 80 episodes we’ve done, we’ve tackled some of the biggest issues of our time – from climate investing to Black Womenomics, green infrastructure to greenwashing, Diversity & Inclusion to the race to net zero. For those who have been with us from the start – thanks so much for listening and for your support. For those just joining us – welcome! We’ll continue to bring you interviews with some of the best and brightest leaders and researchers across the spectrum of sustainability. As you’re listening to this COP 27 is just getting started in Egypt, so we wanted to check in with someone who could help us understand where we’re at in this unique moment. So we sat down with Jes Andrews from the UN’s Environment Programme Finance Initiative for a sense check on the race to net zero, and what we should look out for heading into 2023. Here’s my conversation with Jes.
Jess Andrew is Investment Lead at the United Nations Environment Program Finance Initiative, where she leads the Investment Leadership program and focuses on portfolio target setting with investors in the UN convened Net Zero Asset Owner Alliance. Jes is also the author of the G20 Sustainable Finance Working Group Paper. High level recommendation for credible net zero commitments. And we're going to dig into that today. Jes, thank you for joining us.
Jes: [00:02:04] Keesa, thank you for having me.
Keesa: [00:02:05] So we know developed countries committed to jointly to mobilize about $100 billion in supporting climate action and supporting developing countries around climate action. And Jes, how is the U.N. helping countries and quite frankly, helping them make those commitments, helping them deliver on those commitments that have been made?
Jes: [00:02:28] So the UN has very broad architecture in place to work with and support countries. For example, the United Nations Framework Convention on Climate Change, the UNF Triple C is responsible for hosting the COP every year and bringing together governments from all over the world and supporting those negotiations. We also have specialized parts of the UN, like the UN Development Program or the UN Environment Program, which support countries in a whole range of things from implementing mitigation and adaptation programs to supporting them in preparing their NDCs, their nationally determined contributions, or in accessing the Green Climate Fund. We also convened the Intergovernmental Panel on Climate Change, the IPCC, and this compiles the climate research every four years so that we have a picture of where the global climate is moving with respect to climate change. And as you said, I work with a particular part of UNEP that partners with over 450 banks and insurers and over 5000 investors to help integrate sustainability objectives into their practices. What your audience may often refer to as ESG really along the lines of the Sustainable Development Goals, as well as work with leading investors and banks and insurers to help push those boundaries even further.
Keesa: [00:03:49] Great. So, working with those sustainable the 17 SDG Sustainable Development Goals there. Also want to hear a bit more about your work with the Net Zero Asset Owner Alliance. So, what goes into that and what are the desired outcomes?
Jes: [00:04:05] Yes. So, the Net Zero Asset Owner Alliance is an example of that last item where we're working with a small but leading group of investors who've committed to make their portfolios net zero by 2050. It's now 10 trillion in assets under management, and it was the first global alliance committed to net zero launched in 2019. Since then, though, we have established an alliance for banks and one for insurers, all of which have a few things in common. And this was also followed by a number of alliances for other parts of the financial system, like stock exchanges, financial service providers, asset managers. But in our alliances, we really focus on a few key things. And that's also what you mentioned that I focus on. This is setting and establishing concrete and ambitious targets in line with no low overshoot IPCC scenarios. This means that they are setting targets that comply with the climate science, and we're bringing that forward so that we're not waiting for action in 2050. We're asking them to set targets in 2025 and in 2030. So, bringing this forward and checking progress at those milestones. We also prioritize working with the real economy, so engaging companies to transition their business practices, not just transitioning portfolios or loan books. And we work with policymakers. So recently the Net Zero Asset Owner Alliance released a call for carbon pricing to global governments and also responds to a number of policy developments, asking for the right types of data disclosures so that we can make this transition meaningful. And finally, we work on financing climate solutions. So where do the investments need to go so that these companies can transition their businesses?
Keesa: [00:05:45] So Jes, when I hear financial firms as well as insurers, I think immediately about fiscal climate risk as it relates to insurers. How big is that conversation becoming now?
Jes: [00:05:56] It's huge. It's really massive. And with every degree of warming, we see how hard this gets. We've heard global insurers say that a four-degree world, a three-degree world, these are not insurable worlds. That physical risk is just overwhelming. And that's what really, we're trying to address here is businesses have to transition. Otherwise, each fraction of a degree that we overshoot our objective of 1.5 really has clear financial implications for the global economy, but for investors and insurers alike.
Keesa: [00:06:30] So this takes us to the question what aren't companies do well in their net zero target setting. What's going on here are their best practices or even practices that companies should stay away from.
Jes: [00:06:41] Yeah. So, let's first start with how they're doing well, and then we can talk about some of the challenges that they're facing. So, investors, banks and insurers, as I mentioned, they're committed to the most ambitious climate science out there. They're working to achieve 1.5 degrees with limited or no overshoot. That means we don't blow that budget and then come back down and we're really asking them to set these targets at 2025 and 2030 so that we can do a public reporting at those milestones alongside what the countries do, which is called the global stocktake at those points in time. And we can see how the private sector is moving and how the global system is moving. And what we do in the target setting is we ask them to set those targets within 12 months of joining. And then every year they report to the UN Secretariat convening the alliance on their progress. And then again there's that public reporting at the five-year mark and we just put in place in the Asset Owner Alliance, an accountability mechanism. So, we're checking with a peer group of reviewers and the secretariat, the targets that are submitted for the methodologies according to the guidelines that we've developed in our alliances and where those are falling short, we are flagging and engaging, and the objective is to help first build capacities of those that are submitting targets where they might be falling short. And if they cannot meet that criteria that's been set out by the alliance, then we can engage in a de-listing process so that they're no longer a part of the alliance. So, all of our companies are the investors that we're working with. They are reporting annually and then we'll do so at that five-year mark as well.
Keesa: [00:08:14] And how do you rein in those companies that aren't reporting at all?
Jes: [00:08:18] So our alliance is focused on the leading investors. And so, when they sign up to the alliances, they are committing to meet this criteria that we've established. But more and more, what we see is we're reaching a point where we have a large portion of the assets under management now committed to these alliances. The proof of concept is there, and we really need to see policy makers now transition this from a leadership initiative and a proof of concept to mainstream. And we're starting to see that take place. We have another project, the legal Framework for Impact, but we're engaging with financial systems change to help establish the appropriate policy environment. We're calling for it in these alliances. But for those investors, banks and insurers who haven't signed up to these net-zero alliances haven't made this commitment to report, we're needing to see that come through regulation and policy change. And then we're seeing that happen a lot more on real economy companies as well. They are looking to, the disclosure requirements are growing. This comes from TCFD and other places. And this is really important because you can't manage what you can't measure. So, we're really needing to see that the data come forward from both real economy companies and then how that trickles through to the portfolio and loan book. So, the financial institutions that we're working with.
Keesa: [00:09:31] Great. Now let's talk about how this plays out. We're talking about the country's commitments. We're talking about policymakers transitioning this into mainstream. Can we take a view at what you're doing here with the Net Zero Asset Owner Alliance and talk a bit about how this plays out for some of the folks in the developing countries, how this plays out in terms of living situations, migration situations, whether it be food or water. Can we give a practical view in terms of how this is impacting people?
Jes: [00:10:05] Last week, actually, the UN Environment Program released the Emissions Gap report, this is something we release every year, and it shows that with policies in place, we're reaching above 2.8 degrees, which doesn't seem like that big of a difference between 1.5 and 2.8. But these are worlds of difference. It means much higher risk of extreme droughts and heatwaves, higher sea level rise, you know, enormous differences in terms of ecosystem collapse in different regions. And this is really, really important. And we're seeing a number of initiatives where countries are committing to reduce methane, which is a really important and powerful greenhouse gas or go beyond oil and gas. And these alliances are really important, but it really needs to just be across the board. We need to see action from policymakers, from company CEOs, from individuals, because we're all just as much a part of the problem as we are part of the solution. And if we don't get this right, it is going to impact the lives of many people across the world.
Keesa: [00:11:07] So what are the UN's 2023 expectations or predictions? Are you setting those out right now in terms of what you're looking forward to or what concerns you might have for next year?
Jes: [00:11:17] Yeah, I think we're really hoping that the COP this year it's happening in Egypt will be a tipping point or a turning point. We've seen a lot of incredible progress, a lot of things that the climate community wouldn't have expected as feasible just a couple of years ago, net zero scenarios coming out from some of the largest economies. But it's not enough. It's not adding up. And so, what UNUP is really hoping for is that we start to see the corporate and financial sector commitments and ambition reinforce the policy maker commitments and ambition and that both of these pan out at COP. And we come out with a strong resolution that really does help rein in the emissions that we need to cut. So right now, NDCs are on track for a 5 to 10% reduction. But what we need to see is a near having 45 to 50% by 2030 to really get us back on track for 1.5.
Keesa: [00:12:16] And finally, Jess, what would you say are the top three most critical things in terms of achieving net zero?
Jes: [00:12:23] This is such a great question, Keesa, and I'm so glad you asked it. It's one of my favourites because it's really not that difficult. And we when we started this work a couple of years ago, we looked around at the climate models and then we also had to dig a little deeper for models that showed it at a sector level, because that's that is the level at which investors and banks invest and provide capital. And we found the One Earth climate model and the IEA, the International Energy Agency, net zero by 2050 scenario. And they both agree, and they agree with the climate models. We need kind of three key things. The first is a massive shift from fossil fuel-based architecture to one that is renewable. We need to see electrification of utility grids and we really need to see transportation methods become electric. So, this is the banning of internal combustion engines and the like. We also would really benefit from adjustments to agriculture or in some of the material sectors like steel industry using electric arc furnaces. But these three things address a huge component of the problem. And a price on carbon would go a long way to achieving a lot of this because it internalizes the climate externality that is a big part of why we're seeing this challenge today. So yeah, for me, I think what we really need to see is just policymakers, corporate CEOs, individuals all really work to address the way that we consume our behaviours. Because each step, how your and my pensions are invested, Keesa, all of this really trickles both up and down. That's where we really need to meet in the middle so that we can hopefully see some of these big changes taking place in our economy.
Keesa: [00:14:00] Wow. So, corporations, policymakers and individuals can help drive the shift to renewables, can help with the electrification uptake and can help us get there with a price on carbon. Jes thank you so much for this information. Jes Andrews, Thank you for joining.
Jes: [00:14:20] Thank you.
Keesa: [00:14:21] That’s it for this week’s episode of the LSEG Sustainable Growth podcast. If you’re not already following us, give us a follow and rate us on Spotify, Apple Podcasts, or wherever you get your podcasts. If you have questions, comments, or someone you want us to talk to next, drop us a line at fmt@lseg.com.
Today’s show was produced by Lauren Reilly and Joel Leeman. Production and engineering by Russ Goldsmith and Leon Radschinski-Gorman at Audere Communications. Special thanks to Claire Cheape, Oliver Mann and Rohan Shams. I’m Keesa Schreane. Thanks for listening and see you next week.
