ESG Club
John Mulligan, director and climate change lead at the World Gold Council
GOOD COP, BAD COP? LESSONS LEARNED IN GLASGOW, AND THE ROAD AHEAD…
The World Gold Council found its pres- ence at COP26 in Glasgow to have been rewarding, not least as it allowed us to participate in a wide range of discussions with institutional investors of scale and hear how they were shifting their strate- gies and expectations in response to the climate crisis and policy environment. But other participants were less positive. And, even now, as the conference recedes in the rear-view mirror, there is a plethora of commentary and analysis evaluating its impacts and implications – asking, just how successful was it placing us on a road that might help curb global warming? I have written elsewhere that these gath- erings of the world’s governments are often, almost inevitably, disappointing. The compromises, fudges and deferrals that some countries, and some sectors, may regard as a victory for rational prag- matism over activist zeal, typically result in a final collective agreement that is writ- ten in at least one too many shades of grey. What the world needs, of course, are blazingly bold black and white action plans, stated with ambition, accountability and integrity.
In contrast to vague commitments, the climate science – as articulated in over- whelming and incontrovertible detail in the recent Assessment Report from the International Panel on Climate Change (IPCC) – is blindingly clear. It signalled
that this COP was supposed to be the last chance saloon; the final opportunity for policy makers to ensure they remained on the road to net zero in 2050, keeping alive the hope of a global climate increase lim- ited to 1.5oC, as guided by the science. It is fair to say, however, that the last-minute agreement of UN parties, now known as the Glasgow Climate Pact, did not fully reflect the clarity and urgency of a world balanced precariously on a ‘tipping point’. The Economist summarised COP26 as ’not the stuff of triumph; but not a train- wreck, either.’¹ But, regardless of the many mixed messages, we are undoubtedly in a better place after Glasgow than we were before. The commitments from govern- ments, while still insufficient, are clearer and more ambitious. We now have an agreed framework for a global carbon market. Intergovernmental pledges to tackle deforestation should be helpful in binding climate and biodiversity objec- tives. And the focus on methane emis- sions may rapidly translate into meaning- ful actions with immediate climate impacts. As has often been the case in recent years when considering climate-related risks and impacts, the clearest signals and statements of intent in and around COP26 emerged from the investment and finance community. This was where we at the World Gold Council focused our attention and participation. We attended and spoke at a number of events in Glas- gow where business and finance leaders were defining their plans and clarifying their strategies to contribute to emissions reduction and climate mitigation. At these events, we heard the major institutional investment groups – GFANZ, IIGCC, UNPRI, etc. – and specific climate-con- scious investment leaders speak with what sounded remarkably like one voice. The determination of major asset owners and managers to adapt their portfolio strategies to reduce their exposure to cli- mate risks, while also reallocating capital to better fund the transition to a net zero
34 | portfolio institutional | December-January 2022 | issue 109
PI Partnership – World Gold Coucil
carbon economy, was evident and unambiguous.
In practice, of course, things may not be that simple. For example, a recent analy- sis of the voting actions of the member organisations of the Net-Zero Asset Owner Alliance – a group of investment institutions committed to specific climate objectives representing around $10trn (£7.5trn) of AUM – has highlighted an uncertain pattern of commitment and action, concluding that “membership of net-zero alliances doesn’t mean leadership in acting on climate”². However, this does not necessarily indicate equivocation or hypocrisy. Rather, it may reflect how far we have come so quickly and how far we need to go, even more quickly, to trans- form our economy, and our investment decisions and holdings.
This is a perspective that we are familiar with at the World Gold Council; that is, we have come to recognise the need to re- evaluate strategies and methodologies according to a different or expanded set of risks and objectives. We have, over many years, established a substantial body of research examining gold’s ability to enhance the risk-return balance in diver- sified portfolios. But, more recently, we have widened our focus to include consid- eration of how climate risks and impacts might affect these portfolios and gold’s role and performance within them. Our analysis, undertaken in collaboration with third party research agencies, sug- gest that gold’s more traditional roles as a ‘safe haven’ asset and relatively stable store of value may be overlayed or rein- forced in the context of climate-related economic and asset performance. Against a likely backdrop of amplified market risks and volatility, from escalating cli- mate impacts on particular sectors or the market friction and disruption that may be imposed by a less than orderly transi- tion, there may be heightened demand for a stable store of value with minimal direct emissions. More specifically, we have recently
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