Transitioning to a zero-carbon society is a massive growth story, if we get it right, leaders from academia, an NGO and the corporate sector agreed during a virtual NatWest panel discussion. Four key themes around tackling climate change emerged from the conversation:
1. COVID-19 pandemic an opportunity to reset and take greater momentum forward
“COVID-19 has been a massive stress test for ESG. We need to understand that the pandemic is only a subset of the worst case climate projections we could see,” Amanda Blanc, CEO of insurer Aviva emphasised. ShareAction CEO, Catherine Howarth, pointed out that “COVID-19 has demonstrated what risk looks like when it crystallises. It has made people realise how serious climate risk can be.”
Apart from being an eye-opener, the pandemic – despite its grave consequences – has delivered a great deal of positive news, too. Firstly, it has shown how society can adapt at speed. bp CEO, Bernard Looney: “During lockdown society might have seen what a lower carbon world could look like. Clearer skies, a bit more cycling and walking, and I think they'll want more of that. Do we really want to fly halfway around the world for a meeting? In short, the art of the possible seems to have changed, and we're seeing momentum.”
Furthermore, the pandemic has presented an opportunity to reset and do things differently. Alison Rose, CEO of NatWest Group, said: “We have seen that global collaboration across governments and industry groups can happen very quickly, and as a result accelerate innovation and change with clear purpose. It has also shown that businesses can be a force for good contributing to society.” Leaders need to take forward this momentum of collaboration, creativity and scientific innovation to help make a real difference in the fight against climate change.
2. Saving our planet and ensuring a just transition is a powerful purpose that makes business sense
A fast-growing number of business leaders are realising they can create real value for society and shareholders by tackling climate change. Bernard Looney: “I think it's coming together in a way that five or ten years ago, it might have felt more like a choice in this space. I find that the forces are aligning rather than diverging, and I think that's very, very positive.”
Equally, employees genuinely want change. “We can be a force for good, and as a major institutional investor we can make a real difference. That is deeply energising for every single one of us”, Amanda Blanc commented.
To enable a speedy, economically successful (as well as fair) transition, public policy will be crucial going forward. Lord Nicholas Stern, Chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics: “Governments need to act to reduce uncertainty through clarity of policy.”
The panellists agreed, adding that clear incentives from businesses for employees, customers and shareholders are important in driving action as, to Catherine Howarth’s point, is making climate risk and performance central to the fiduciary duty of institutional investors.
3. Collaboration will boost change
Governments, the public sector and corporates, including banks and insurance companies, as well as communities globally rallying and coming together to find solutions during the pandemic has shown how we can accelerate innovation by joining-up efforts. Alison Rose: “We don’t yet have the technology for everything to be net-zero, but we can create the solutions so much more quickly when we collaborate across industries and across countries. We need to scale the impact, and we won’t solve this individually.”
All panellists welcomed China’s recent pledge to reach “peak carbon” before 2030 and drive down emissions to zero by 2060, as well as the news from the US to re-join the Paris Agreement. However, they also called for global policy makers to develop international common standards in order to provide much-needed guidance and achieve progress faster. Bernard Looney added: “I think India is to be absolutely applauded; they have a COP21 commitment of 35% reduction in carbon intensity…that’s stunning.”
4. Investing in social resilience will be key to successful transition
Governments and business leaders need to support social resilience to ensure we can successfully transition to a zero-carbon society. To initiate the change that is required to transform into a green society, a just transition with significant investment in social safety nets is crucial. Catherine Howarth: “We need bold, visionary policies that help level the playing field and make everyone feel secure. Only then, real change will happen.” Amanda Blanc agreed, adding: “It will be critical to consider the interests of people and communities. Government has a role here and so do we as businesses.”
Why the low carbon transition has to be top of the corporate agenda
The panellists also elaborated on their motivation to move the fight against climate change to the top of their agenda. Amanda Blanc: “Aviva’s purpose is ‘with you today for a better tomorrow’, and I think it couldn’t be more fitting when we think of climate change: There is no better tomorrow if we don’t do something about it today. As much as there was a push from me to focus on the climate change fight, there was also a massive pull from our staff. On a practical level, we realised that some things will become uninsurable if the world keeps getting warmer and that would lead us to a point where we don’t have a business model anymore. Equally important, however, is that everyone at Aviva understands that we can be a real force for good. We have £500+ billion of assets under management and can make a really big difference if we focus our investment on the right things, on green and social investments.”
Bernard Looney: “There are two reasons for our motivation: It’s very hard to be a long-term successful company and go against what is good for the world in the long run, and go against the grain of society. Also, we passionately believe that we have deeply relevant skills to help reimagine energy. The world wants affordable energy, it wants reliable energy, and it wants its energy to be clean. We can deliver this, and all our staff want to help with that. They know it’s the right thing for the world. Secondly, it is a massive business opportunity because trillions of dollars are going to get spent rewiring and re-plumbing the earth’s energy system. So, as a company we can do the right thing and create real value. There is no trade-off, and we are incredibly energised by this.”
He added “We need encouragement, financially, for large sectors to transition; if we can do that we can really crack this.”
Alison Rose: “Our purpose is ‘to champion potential, helping people, families and businesses to thrive’ and at the heart of that is to deliver long-term sustainable value for all stakeholders. As a bank we’re very embedded in people’s lives, and as such we want to play a really meaningful part in one of the biggest challenges we’re all facing. Hence we made the climate transition a core part of our strategy and made the bold commitments that we’ve made, and our staff are fully behind this. They want to come to work and have a purpose. They are very good at their jobs, but they also want to know that their work makes a difference and creates value for not just them but for future generations, so that is really what we are doing. And then, given the role we play in funding businesses, in supporting families, in helping finance the transition, it is critical that we are involved in this debate and that we finance the transition, finance the new technology, finance the companies that are really standing up to do that, and fulfil our role as liquidity providers for the economy.”
Call for action: Be ambitious, and lead!
The panellists were clear in their message to their peers: leaders need to take bold decisions now, incentivising customers and the wider public to make the green change by offering suitable, competitively priced products while also delivering positive performance for shareholders by boosting innovation in the process. The transition is vital and one needs to see the opportunities versus mitigating the risks to fully drive change. Lord Stern: “We must do this. It is a great opportunity for everyone. Be ambitious and lead!”
The panellist’s organisations and their sustainability commitments:
Aviva, signatory of the UN Net-Zero Asset Owner Alliance, is carbon-neutral since 2006 and has pledged that its auto-enrolment pension default funds, the largest pension funds, achieve net-zero carbon emissions by 2050. The insurer has already invested over £6 billion in green assets on behalf of Aviva and its customers since 2015 and is committed to making it easier for its customers to choose ethical investing.
This year, bp set out its ambition to become a net-zero company by 2050 or sooner and help the world get to net-zero. By 2030, bp aims to have developed around 50GW of renewable generating capacity, delivered a 10-fold increase in low carbon investment, and reduced oil and gas production by 40%. bp is pivoting from being an International Oil Company to an Integrated Energy Company.
ShareAction is a charity that promotes responsible investment in the UK and beyond. It mobilises and works directly with mainstream institutional investors to support and invest in those companies that are acting on climate change, workforce and gender issues and food system risks.
Lord Nicholas Stern is the IG Patel Professor of Economics and Government, and Chairman of the Grantham Research Institute on Climate Change and the Environment at the London School of Economics (LSE). He is also an independent climate adviser to the NatWest Group. He was knighted for services to economics in 2004, made a cross-bench life peer in 2007 and was appointed Companion of Honour for services to economics, international relations and tackling climate change in 2017. He has published more than 15 books and 100 articles. His most recent book is “Why are we waiting? The logic, urgency and promise of tackling climate change”.
NatWest Group is one of the founding signatories of the Principles for Responsible Banking, committing to strategically align its business with the Sustainable Development Goals and the Paris Agreement on Climate Change. It has pledged to make its own direct operations climate positive by 2025 and to at least halve the climate impact of its financing activity by the end of this decade. The group is also providing an additional £20bn of financing and funding for climate and sustainable finance by 2022. NatWest Group has just announced that it will be the Financial Services principle partner for COP26 in Glasgow next year, which also entails a commitment to the Science Based Targets initiative.
This article has been prepared for information purposes only, does not constitute an analysis of all potentially material issues and is subject to change at any time without prior notice. NatWest Markets does not undertake to update you of such changes. It is indicative only and is not binding. Other than as indicated, this article has been prepared on the basis of publicly available information believed to be reliable but no representation, warranty, undertaking or assurance of any kind, express or implied, is made as to the adequacy, accuracy, completeness or reasonableness of the information contained in this article, nor does NatWest Markets accept any obligation to any recipient to update or correct any information contained herein. Views expressed herein are not intended to be and should not be viewed as advice or as a personal recommendation. The views expressed herein may not be objective or independent of the interests of the authors or other NatWest Markets trading desks, who may be active participants in the markets, investments or strategies referred to in this article. NatWest Markets will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser; nor does NatWest Markets owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on NatWest Markets for investment advice or recommendations of any sort. You should make your own independent evaluation of the relevance and adequacy of the information contained in this article and any issues that are of concern to you.
This article does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell any investment, nor does it constitute an offer to provide any products or services that are capable of acceptance to form a contract. NatWest Markets and each of its respective affiliates accepts no liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this material or reliance on the information contained herein. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not be lawfully disclaimed.
NatWest Markets Plc. Incorporated and registered in Scotland No. 90312 with limited liability. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. NatWest Markets N.V. is incorporated with limited liability in the Netherlands, authorised and regulated by De Nederlandsche Bank and the Autoriteit Financiële Markten. It has its seat at Amsterdam, the Netherlands, and is registered in the Commercial Register under number 33002587. Registered Office: Claude Debussylaan 94, Amsterdam, the Netherlands. Branch Reg No. in England BR001029. NatWest Markets Plc is, in certain jurisdictions, an authorised agent of NatWest Markets N.V. and NatWest Markets N.V. is, in certain jurisdictions, an authorised agent of NatWest Markets Plc. NatWest Markets Securities Japan Limited [Kanto Financial Bureau (Kin-sho) No. 202] is authorised and regulated by the Japan Financial Services Agency. Securities business in the United States is conducted through NatWest Markets Securities Inc., a FINRA registered broker-dealer (http://www.finra.org), a SIPC member (www.sipc.org) and a wholly owned indirect subsidiary of NatWest Markets Plc.