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01 October 2019

A sense of momentum – reflections on New York Climate Week

Oliver Rix

Oliver Rix
Partner | Energy, utilities and resources | London

I was in New York City last week for the 2019 Climate Week. Coming hot on the heels of the previous Friday’s climate change marches led by young people on a huge scale around the world, and the UN’s Climate Action Summit on the Monday, it has been an intense few days. After a lot of talking and listening, a few thoughts below.

Net zero has changed the mindset – Thanks to the IPCC’s 1.5˚C report last year, and helped greatly by the UK leading the way with its subsequent decision to change the Climate Change Act to commit to net zero by 2050, the discussion is now rightly focused on eliminating GHG emissions entirely by 2050.  With hindsight it seems odd that this wasn’t always the case – I think that reflects a shift in an appreciation of the urgency of addressing climate change, combined with the astonishing cost reductions we have seen, particularly in renewables, which has helped convince people that this is feasible.  But switching from 80% to 100% dramatically changes how people think about the problem.  As Lord Stern pointed out in one forum, previously any particular sector could assume they were part of the residual 20% – but those options have now gone.  We need to do everything.

Greta is making a difference – It was striking how, even in sessions targeted at hard-nosed investors and business people, the clear messages of the youth movement were referenced as an important driver for change and call to arms.  Change is going to happen as much because people at all levels within organisations see it as both right and essential, as it is from top down decisions.

It’s got to be a growth story – There was a lot of emphasis across the board on seeing the transition as a huge opportunity, rather than a cost to be borne.  Whilst I imagine this is not the response that Greta would wish for, this came through in multiple ways as a key means to unlock and accelerate change – whether it was the CEO of Dalmia, a large Indian cement manufacturer, talking about the competitive advantage of a commitment to being carbon negative (yes, negative) by 2040, the discussion in investor meetings about transition-oriented funds being about better returns, not just being “green”, or the recognition that a lack of transition strategy is a factor in credit ratings.

Change or die – Mark Carney was clear in his address to the UN General Assembly on the Monday: “Firms that align their business models to the transition to a net zero world will be rewarded handsomely. Those that fail to adapt will cease to exist.”  This is increasingly becoming the mainstream view.

Capital allocation is key to the transition, and those providing or directing capital (such as banks, insurers, asset managers, and pension funds) need the understanding and tools to support the fundamental shifts underway.  This was a clear message from the session I co-presented at with LGIM and Bank of Montreal (where I was discussing Baringa’s leading edge climate analytics and our Prospect transition model), and it was reinforced across the board.  To quote Mark Carney again, “Changes in climate policies, new technologies and growing physical risks will prompt reassessments of the values of virtually every financial asset.”  This is not just a check-box exercise, but will require real engagement by organisations to grapple with this properly. Those firms who have made the decisions and investments in tools and capabilities now, will reap the rewards in the future when they will hold a clear competitive advantage.

We have a long way to go – There was a lot to be positive about.  But we are overall still woefully short of the pathway we need to be on.  Things are moving in the right direction but the messages around urgency and the pace that is needed must continue to be made and made strongly.  That falls on all of us.

Baringa is advising numerous leading organisations on the impacts and opportunities of climate change, whether it be on addressing their own energy usage, understanding the financial consequences on their investments, or developing and applying scenarios. If you would like to know more then please click here