All of this isn’t to say that finance is no longer an issue – far from it – but it’s clear that other things need to be tackled with urgency at the same time. And if we look beyond the energy transition and into the emerging intersection of climate, nature and ecosystem services (a key theme of COP26) there is still, unfortunately, a basic lack of capital. The age-old problem of the ‘tragedy of the commons’ persists: nature isn’t valued properly and the rewards from destroying it often outweigh those from preserving it. Even where nature is preserved, it’s usually at a financial cost to whoever’s preserving it.
Again, multi-sector collaboration and leadership from governments is needed. Attendees at COP26 talk of a lack of established channels or financial instruments to facilitate investment in nature. The carbon offset market is to some extent acting as a proxy that lets some capital flow, but there is a need to create more ‘proofs of concept’ that demonstrate how protecting nature can generate returns.
It would be nice to think that the world’s most innovative and disruptive companies can sidestep most of these practical issues and find profitable solutions that can be deployed at scale. Based on the evidence we see from some of our most forward-thinking holdings they can certainly play a role. But the thing about what’s been agreed at COP26 is that it needs to involve everyone - all parts of society and all parts of industry. This is a point made particularly forcefully by those campaigning for a fair and just transition who say the shift to net zero must not result in the kind of negative social impacts that accompanied the de-industrialisation of richer countries in the past.
For those of us working in the finance industry, it’s important to challenge ourselves to think well beyond our roles as providers of capital. If we’re serious about supporting the transition to net zero, we also need to play a role in helping to solve the more practical and, frankly, difficult challenges that need to be overcome if the true potential of climate solutions is to be realised.