Sara Minchin from the WWF-UK Sustainable Finance team explains why money matters in the climate emergency, and why WWF is joining forces with Aviva.
Conservation has evolved over the last six decades. WWF turned 60 years old this year, and whilst we may be known for our work protecting endangered species like the giant panda, who still stands proudly in our famous logo, we’re now about so much more. WWF’s mission is also about tackling the systemic issues driven by human activity that are now destabilising our shared home. The food we eat, the things we buy, the way we spend and where we invest our money – these choices all make an impact on the planet.
We are living in a climate emergency, perhaps the greatest challenge for humanity in the 21st century. Our health, security and survival are all at risk on an unstable planet and we are now seeing impacts in the UK such as increased flooding and more extreme weather.
"We are living in a climate emergency, perhaps the greatest challenge for humanity in the 21st century."
Climate and nature risks are also impacting the finance sector. The insurance industry specifically will be impacted in two ways, facing a higher number of more costly claims due to extreme weather, as well as the impact on the value of assets they have invested to cover future claims and to fund people’s retirements. The concept of ‘stranded assets’ to explain the impact of climate change on investment values has been around for some time and has now been demonstrated in practice with coal assets losing value as investors move away from an industry they see shrinking and disappearing in the future. And the stranded assets concept is not just limited to the energy industry; as climate change gets worse, so does the impact on different industries and eventually investments. Agricultural assets, for instance, are already being impacted by the changing climate.
And it is not just a question of climate and nature risks impacting finance, the impact of finance on climate and nature is also vastly important. Since the signing of the Paris Agreement, the world’s largest 60 banks have provided $3.8 trillion in financing to the fossil fuel industry. Recently the IEA has clarified there is no place for any new fossil fuel investment if the world is serious about moving to an economy that reflects the goals of the 2015 Paris Agreement and reaching net zero emissions by 2050. And this is how finance can also be part of the solution, not just a source of the problem. It can serve as a lever to speed up the transition to net zero. The world’s economy relies on investors, insurers, and banks and the decisions they’re taking today will matter for decades. They can either lock-in carbon in high-emission companies and assets with long lifespans, such as coal mines and power stations, hampering our chances for a net zero transition. Or, today’s decisions could support innovation in tomorrow’s low-carbon technologies, such as better batteries for storing renewable energy, helping us reduce our emissions. Investors can also engage the companies and projects they already invest in on their climate impact, challenging them to reduce their emissions in line with the science. With this ability to influence corporate behavior, and the fact we simply cannot finance the transition from public funds alone, the role of private finance in transition to net zero carbon emissions becomes crucial.
"It is not just a question of climate and nature risks impacting finance, the impact of finance on climate and nature is also vastly important."
Finance is a high carbon sector
The finance sector has started to respond to the call to act on climate in the last few years, with significant progress on improving climate disclosures, and more financial institutions announcing net zero commitments and joining industry alliances to work on these voluntary commitments. However, while the most progressive financial institutions are taking bold steps towards net zero, we no longer have the time to wait for voluntary action alone to bear fruit. What we need to get there is urgent, ambitious, and consistent sector wide action. The government needs to level the playing field and help the companies that are already doing the right thing to go further, whilst pushing the laggards to up their game.
WWF and Greenpeace recently published a report on the financed emissions of a selection of large UK banks and asset managers to demonstrate why the finance sector should be considered a de facto high carbon sector, just like the energy and transport industries, and should be regulated as such. The leading recommendation of the report is for the UK government to require all regulated financial institutions to adopt and implement a transition plan that aligns with the 1.5°C goal of the Paris Agreement. We need mandatory transition plans for the finance sector. This is the best lever to incentivise the real economy to move to the right path to a net zero transition in line with the climate science.
"The government needs to level the playing field and help the companies that are already doing the right thing to go further, whilst pushing the laggards to up their game."
And while such a mandate from the UK government is urgent and necessary, it is only the starting point. It will focus minds and resources on this shared future outcome and facilitate collaboration between the industry and the financial regulators to establish exactly what aligning with the Paris Agreement means for the finance sector and its different actors. It can be done.
The role of financial regulators is first to support the industry in creating credible alignment pathways and then overseeing their implementation. Ongoing dialogue between the regulators and the finance sector is needed to develop guidance and to ensure this is updated in line with the latest climate science and to ensure consistent and comparable transition paths are adopted for the sector and beyond for the real economy. The existing international fora of the Network of Central Banks and Supervisors for Greening the Financial System and the Glasgow Financial Alliance for Net Zero could perhaps facilitate such ongoing dialogue.
Now is the time for action
With the UK hosting the COP26 climate summit in November, 2021 is a crucial year for slowing down climate change. The world’s eyes are on us, and we should not miss this moment to harness the power of our globally significant finance sector.
Against this backdrop, WWF and Aviva have launched our new partnership to help accelerate change. Aviva is the UK’s leading insurer and recently became the first major insurer worldwide to target net zero carbon emissions by 2040. WWF is the leading global conservation organisation working to build a future where people and nature thrive. Together we have the reach and influence to reimagine and start to reorient the way financial services function in a sustainable economy.
"WWF and Aviva have launched our new partnership to help accelerate change."
As part of this partnership, we will work with governments, regulators and the industry on realigning the finance sector to the 1.5C climate change goal of the Paris Agreement. We will also work on climate resilience with communities in the UK and Canada, building healthier and more resilient ecosystems that help reduce the risk of climate-related natural disasters and create wider benefits for people. And we will also engage millions of people in the UK and Canada to understand the power of their choices in building a more sustainable future. We’ll be publishing more details about our partnership projects soon.
Seizing the opportunity
The UK has an unprecedented opportunity to take this bold step to show global leadership on climate action and inspire similar action from other governments.
And while the challenges of moving to net zero are great, so are the benefits. It is an opportunity for the UK to become a truly leading green finance centre, while reducing the risks to its finance sector and making it more resilient to future shocks. The cost of transition is also escalating the longer we wait, so the sooner we can align with climate science, the less disruptive the transition will be.
There is no time to wait – let's make 2021 the year when the finance sector begins to steer us toward a sustainable future, and starts becoming aligned with the 1.5C goal of the Paris Agreement.
Sara Minchin is a Senior Sustainable Finance Specialist at WWF-UK. Her work focuses on sustainable finance practices, policies and regulation and how these lead to tangible sustainable outcomes for our environment.
If you want to dive deeper into the connections between finance and the environment and how finance can drive change in the real economy, watch our film Our Planet: Too Big To Fail, produced with Silverback films and with footage from Netflix’s Our Planet series.
For more detail on our Paris Aligned Finance Sector ask, see the shared WWF and Aviva policy position here.