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Ethical Investing

The Paris Agreement was reached at COP21 in 2015. For the first time ever, it saw almost every country around the world enter into a legally binding commitment to reduce emissions. It was ‘top down’ in that every country – no matter how big or small – signed up to cutting carbon emissions to limit global warming to well below 2 degrees and ideally to 1.5 degrees above pre-industrial levels; and it was ‘bottom up’ in that it left room for each individual country to decide how they would get there.

Fast forward to COP26 being held right now in Glasgow and I think we can all agree that a lot of talking has taken place in the intervening years but nowhere near enough action. Developing nations especially are currently suffering significantly from the effects of climate change, with 80% of carbon emissions to date having been created by the G20 group of developed nations.

To deliver on the Paris Agreement the whole global economy needs to shift. Companies, banks, insurers and investors all have to adjust their business models and develop credible plans for the transition to a net zero economy and implement them. To encourage the financial sector to do more, the COP Presidency, the UN High Level Climate Champions and Mark Carney have launched the Glasgow Financial Alliance for Net Zero (GFANZ). This already unites over 160 firms, together responsible for assets in excess of US$70 trillion, from the leading net zero initiatives across the financial system to accelerate the transition to net zero emissions by 2050 at the latest. These initiatives must all be accredited by the Race to Zero, which means using science-based guidelines to reach net zero emissions and setting 2030 interim targets. GFANZ includes 43 banks representing $28.5 trillion through the Net Zero Banking Alliance, 87 asset managers representing $37 trillion through the Net Zero Asset Managers Initiative, and 37 asset owners representing $5.7 trillion through the Net Zero Asset Owner Alliance. GFANZ will drive and raise the ambition of the financial sector towards COP26 and beyond which we fully support.

There have also been great strides for the individual investor. Our regulator, the FCA, has recently introduced measures to standardise and manage sustainable investment labels in an effort to combat greenwashing and provide greater confidence to investors as to the sustainable status of their investments. This, along with the increasing desire from investors to make a positive impact with their capital, has led to the substantial growth of sustainability focused products and we are starting to observe this through our Enhanced Partner Investment Club – EPIC. At present an investor with a high-risk EPIC portfolio will have around 42% of their assets in sustainable funds, a medium risk EPIC portfolio will have 35% and a low-risk EPIC portfolio will have 33%. This is a great start, but it is only the beginning, and we can all expect to see an increase in pressure on financial institutions to do the right thing with the money entrusted to them.