It’s capitalism that will win the fight against climate change

Shareholders and boardrooms are going green, finds Jillian Ambrose

The climatechange experts who gathered at the heart of Poland’s coal-mining industry in Katowice earlier this month could be forgiven for feeling gloomy. Around the UN’S latest round of talks hung the inevitable fug of fossil-fuel emissions in a country which relies on coal power plants for more than half of its electricity. Inside the COP 24 meeting rooms, the atmosphere was gloomier still.

Delegates had an ambitious task: to agree to a set of new global pledges which bring the world’s climate-change efforts in line with the benchmarks set in the landmark IPCC report from earlier this year.

After a fortnight of fraught diplomatic wrangling, 190 countries agreed over the weekend to an international climate road map dubbed the Paris Rulebook. It has emerged three years after the Paris Accord was agreed, and falls short of the UN’S stark warning this year that even Paris is not enough.

“When the Paris Agreement was signed in 2015 we knew the pledges contained in it didn’t add up to stopping climate change,” says Mohamed Adow, a climate delegate attending on behalf of Christian Aid.

“The Paris Agreement as it stands now only gets us to a world between 2.7 and 3.5 degrees Celsius of global warming, much higher than the agreement’s goal of 1.5. No outcome here in Katowice will be acceptable without countries agreeing to review and strengthen their pledges by 2020.”

But only a few hundred miles away, in Europe’s major financial centres, the future of green finance is decidedly brighter.

In City boardrooms, pedantic diplomatic wordplay gives way to climate-change efforts based on the pragmatism of hard financial returns. For many, the issue of how to tackle climate change has already made the journey along corporate corridors from governance departments into the executive suite of some of the world’s largest investors. In the City, at least, climate action is powering ahead.

Earlier this month, Royal Dutch Shell said it would bow to the climate concerns of shareholders by binding the pay packets of its top bosses to tougher carbon emission targets.

The announcement emerged just days after Thames Water, Britain’s largest supplier, said it would link the interest it pays on a new £1.4bn revolving credit facility to its own environmental goals: fall in line and pay a lower rate; fail and pay more.

Shell’s move is a first for a major oil company. Its board will set targets to shrink the group’s carbon footprint every year, and judge the success of these goals when setting the bonus pay of its top brass. The plan was announced following fierce calls from ethical investors, including the Church of England and Dutch investor Robeco, for Shell to take bigger steps in helping to tackle climate change.

Europe’s second-largest asset manager, Legal and General Investment Management (LGIM), is also lobbying for change in some of the biggest oil and mining companies. It says the precedent set by Shell will make it easier to put pressure on other companies to clean up their act.

“As a large investor, we are absolutely passionate about the need to tackle climate issues,” says Sacha Sadan, the investment giant’s head of corporate governance. “This is not some charitable endeavour. We are very clear that climate change will affect our clients’ portfolios. If you are expecting returns in 25 years’ time, you need to think about climate change.”

Eight large companies, including US oil firm Occidental Petroleum, Subaru and China Construction Bank, face investor anger over their slow progress in moving to a greener economy. It is a strategy that is already yielding results.

Banks such as ING, BNP Paribas, Standard Chartered and Société Générale have all pledged to align their loan books – which amount to more than €2.5 trillion (£2.2trillion) – with the goal of limiting global warming to two degrees Celsius above pre-industrialised levels. That the City may succeed where diplomats are failing points to a “growing traction” among a “groundswell” of investors who are taking climate issues seriously in their investments, says LGIM’S Sadan.

It is driven in no small part by clear warnings from credit ratings agencies – without a clean bill of health in a warming world, the cost of capital becomes an existential risk.

S&P Global says the economic case for tackling climate change is clear. “Climate change is no longer a problem for the future. It has already started to alter the functioning of our world,” says a new report from the ratings giant.

Sadan admits the City is not yet on the right trajectory, but the answer to climate change might still be found in the places that early green campaigners least expected it.

“Green finance is taking off exponentially,” he says. “The Chinese green finance market will be the biggest, even though London is trying very hard. No one should underestimate what is going on in Asia. These are fast-growing, fastmoving economies. And they see the effects of climate change more often than we do.

“This is responsible capitalism. But it’s still capitalism. It’s common sense.”

‘The Chinese green market will be the biggest, and London is trying very hard’