BONUS: COP26 Round-Up

Anna-Marie:

Hello, and welcome to our special bonus episode about COP26 here on ESG Matters @ Ashurst. I'm Anna-Marie Slot, Global ESG and Sustainability Partner. And I'm joined today by two of my colleagues who were also up in Glasgow with me. Ellie Reeves, our Head of Environment here in our London office, and a longstanding ESG and sustainability focused practitioner. And Lorraine Johnston in our fin reg team here again in London, but also very well versed in ESG, and particularly the onslaught of ESG regulation that has been the norm in the last couple of years.

Today, what we're going to do is we're going to talk about what did we take away from being up at COP? What were some key ideas that were floating around? What things could you be thinking about for your own businesses, and how to really action the ambitions people were talking about.
I guess from there, this COP to me was an interesting one because of the very large presence of the finance world in it, together with that diplomatic core. So they're evolved over the couple of weeks an inside COP, where the diplomats and the people who were negotiating the actual terms of the next pact were working together and having presentations.

But there was also a very active and robust outside COP, which was the Green Zone together with an enormous variety of activities outside of the Blue Zone. Where you had everything from hubs that had been set up by the New York Times and the UK Times, to we went to a Net-Zero Now presentation at, at a brewery in Glasgow. Who knew there were still a live brewery in Glasgow.

But maybe Lorraine, what were your key takeaways then?

Lorraine:

I think that sums it up really well. I think we did see financial institutions, lots of different financial institutions, playing their part. Clearly there was one day Finance Day, which I think was the Wednesday of the first week, if I remember correctly, that was dedicated to looking at how to use our financial system in order to support that transition to a net-zero carbon economy that Rishi Sunak set out so clearly and then was supported by GFANZ, and the statements from Mark Carney.

In terms of the financial institutions that were there, there was a little bit of trepidation. COP had opened with Greta Thunberg decrying banks as being the destructors of our future. And I think one of the points I would possibly make there is I understand the sentiment there, but there's a little bit of immaturity around that statement. Because as Mark Carney and as Rishi Sunak clearly made the case for, you need the financial system to support that transition. You need the capital flows to be reoriented towards those investments that are going to support a net-zero carbon economy.

It was great to see some big well-known banks within the Green Zone. It was great to see some showcasing of new product features, and for example, current accounts. RBS were there showing their carbon footprint tracker for retail customers, as well as their support of SME businesses that are focusing on sustainability and sustainable products. So great opportunities there. And as you say, in the sidelines, on the events outside of both the Blue and Green Zone, we saw a lot of really great discussion about how exactly that reorientation has to take place and what we need to see basically happen in action.

Anna-Marie:

No, exactly. And what did you think about the reorienting the finance markets overall? Do you think that there was enough said? I mean, we had Mark Carney and this fantastically enormous wall of money that's apparently ready to go. What do you think, based on what we were seeing there, what was your takeaway on that one?

Lorraine:

Look, I think there's definitely enthusiasm. And I think we are getting to the stage, and Ellie, you and I have looking about this a lot, where there is an understanding of the need for attitudes to change. That this isn't just a nice-to-have or a tick box approach. We saw the announcement in relation to new sustainability disclosure requirements. They had already been trailed within the roadmap for greening finance prior to COP. We also saw more detail around making transition plans mandatory.

There was a little bit of niggling between what had been trailed and actually what we saw being announced on Finance Day. For example, when you look at the detail for transition plans it says that you don't actually have to make your commitment net-zero carbon, it can be somewhere along the path. And I think there's a little bit of disappointment there, that it's more about actually just making any commitment rather than a net-zero carbon commitment.
Look, there is definitely positive steps with the UK being in the role of president. I think it was really important for the UK, and in particular Rishi Sunak, to make a big deal about how the financial system would help support this, how it was going to be achieved. And I think that Mark Carney, was it 130 trillion? That was always going to be the figure that caught the headlines. Now we need to actually see how that capital gets utilized.

Anna-Marie:

No, exactly, exactly. And that takes you from the finance that first week to that second week, which is a lot of focus on energy, from the first week as well. But also from the built environment and the infrastructure side.

And so on that energy transition, key and critical of course to the entire process of trying to get to net-zero, is the complete transformation of the physical asset base of the world's economies at speed and at scale. And that conversation extended on the second week into what does that look like in a built environment world? What does that look like in an infra world? Ellie, maybe from your side, what were your takeaways around those areas?

Ellie:

 Thanks, Anna-Marie. Well, I think one of the most exciting things to come out the Built Environment Day was the UK Green Building Council announcing its Net Zero Whole Carbon Roadmap. And what's really interesting about that roadmap is that it sets an action plan for across the value chain for all stakeholders. And if you are in any doubt about what you need to do, that is a fantastic place to start in terms of looking at the key measures, and also the collaboration that is needed to really drive forward your net-zero objectives.
I'd say there's a lot there to, to be taking forward on the built environment, and also the contribution of cities. A lot of the side events actually had some fantastic ideas being shared around how cities can start to collaborate, to share ideas, to move things forward. They have huge stakeholder engagement opportunities. And this is also of course about the human interaction with the environment and the impact on health and wellbeing, social value. And so all of this comes together with some really impactful ideas and opportunities to go forward.

Anna-Marie:

 No, definitely. And I think that's the key point. We saw the cities, the cities had their own group in fact at COP, and in the Blue Zone, having conversations. One of our previous podcast attendees, Chris Castro, was there from Orlando talking about how Orlando is decarbonizing its entire grid. What are the cities doing?

And one of the events that I thought was really interesting was from Hitachi around innovation in Europe, and an innovation forum that they did up in Glasgow. Where they had partnered up with Arup and with various other partners to look at what does that look like on a city level. How do you create a grid that can take in multiple types of energy at the same time. Because you will have lots of different types now, it won't be just the burning of fossil fuels. You'll have to have some combination, a variety of wind, solar, hydrogen. In England's case, they're open to nuclear and have committed to that.

How does that work? I guess, what do you guys think, just in terms of ... Do you think people have more tools now than they had before COP to actually make this happen? I mean, there's a lot of talk and a lot of people thinking, "Oh yeah, this is something I need to do," but I think still a lot of confusion about what to do next. Any thoughts on that?

Lorraine:

 I think, so looking at the area of my focus, financial services, and in particular on the buy side, on the fund manager side, I think we are seeing some real changes afoot. We are seeing an absolute explosion of heads of sustainability. We are seeing overhauls of governance frameworks, to basically incorporate responsible investment policies or sustainability policies throughout organizations and throughout each of those investment policies and strategies that they deal with within their house. That is becoming more common, which makes it absolutely, from my perspective, you can start to see that trickle-down effect from the changes in regulation.

The other thing I think I took from COP26 and being there, is that the regulatory parlance is now starting to infiltrate those discussions about the real assets, about the built environment. So things around about taxonomy, for example, things about are you an Article 6, an Article 8, an Article Nine fund. That's no longer just the language that I talk in, that's the language that everyone that's walking the streets is also starting to talk in. I think that's the key takeaway for me

Ellie:

 It's the whole economy approach, isn't it? It's as you say, Lorraine, it's moving from the finance sector to ... And you talk about the wall of capital and the reorientation of capital flow, well, where's it going? And I think on the flip side, we've now got corporates. See, we've had the IPCCs reports, which unequivocally explains how dire the situation is from a scientific perspective. There was very little debate around the science at COP this year, that was a real game-changer.
But we've also seen corporates driven by either mandatory disclosures, obligations through TCFD, or even just looking at what their risk mapping is going to be across their businesses and markets. Now looking at this from board level and starting to really think about fundamentally the climate related financial risk which affect their businesses going forward. And that drive is, I think, has been a real change from this COP and a key takeaway for me.

Anna-Marie:

 Yeah, no, definitely. I think that idea that it used to be the realm of scientists and maybe some policy people. And I think now it's everyone's realm. The finance is in the conversation, the companies themselves are in the conversation, which is key to it. You can't leave anyone outside the door here because there is only one planet that we're all living on at the same time. And so I think it's that acknowledgement.

I think the one thing that I was very happy with, despite the last minute language changes that people have been focusing on quite a lot, the thing I was quite happy with is that the NDCs will be relooked at next year. Not five years from now, but next year. And that, that focus on a 12 month timeline where people really need to get moving, I think was a great shift. And the fact that, as you say, Ellie, everybody was talking 1.5 and there weren't that many people saying, "Oh, well, let's have a conversation about that." Now that might be a self-selecting group because they were all a COP.

But I think those things really create a change in how the wider whole economy, as you say, is looking at this solution. For our listeners, any one thing that you'd want them to take away from what we experienced or anything you'd like to share?

Lorraine:

 What I would hope, maybe slightly more aspirational, is that people take away that COP matters. That it wasn't just a talking shop and it wasn't just setting, for example, the NDCs. It was something where we saw tangible changes come out, and it's now time for action. I think, having had the pandemic and that delay slightly, I think that makes it even more important basically.

Ellie:

 Yeah, and just building on that. We've got eight years to really make some huge changes. And I think that those eight years are within ... At the moment, we're all geared up, ready to go. As you say, Lorraine, we've got to convert it into action. And I think there's some fantastic ideas and innovation and opportunities which have been discussed in COP26 this year. Now it's about really getting on with it and in integrating it into your businesses. I summarize it in three words, action, the ambition.

Anna-Marie:

 Excellent, excellent. Thank you both for your time and thank you everyone for listening in.

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