ESG Club


John Mulligan is director, climate change lead and market relations at the World Gold Council


NATURE FIRST: DELIVERING CLIMATE ACTION AND WIDER ENVIRONMENTAL PROTECTION


There has been no more significant driver of change in recent investment thinking than the need to address the threat of global warming. Investors, particularly those of scale with long-term horizons, have been substantially modifying the way they approach and select assets in the light of climate-related risks. The science


is unwaveringly clear in


demanding all economic actors strive to minimise their carbon footprint, and investors have become increasingly aware they need to better manage their exposure to climate impacts while pursuing oppor- tunities to make a meaningful contribu- tion to the global transition to a decarbon- ised economy. And regulatory requirements, supportive of the transi- tion, are expanding to ensure this trend continues to build momentum and traction. But, increasingly, climate-focused strate- gies and actions are being viewed in rela- tionship to other key sustainability objec- tives, with issues such as water availability and quality, and wider environmental pro- tection and conservation being given more attention and weight. Some commentators and market partici- pants have suggested this is problematic, although there is some divergence as to why this might be. A diminishing num- ber of sceptics simply see any widening of the agenda as overly burdensome on busi- ness, requiring consideration of too many


42 | portfolio institutional | March 2022 | issue 111


factors they perceive as peripheral to their primary goal of delivering shareholder value. Similarly, the argument is often made that these are primarily issues of government, not of business or invest- ment. I would argue, however, that these positions will become increasingly unten- able as the severity of the risk and conse- quences of inaction become more appar- ent, and as the market becomes smarter in pricing such risks. ‘Business as usual’ in this context is only likely sustainable over the short term. Others, however, including some sustain- ability professionals, argue that the focus on climate actions and, specifically, decar- bonisation may lead to the wider ESG landscape being neglected. For example, recent commentary has described the threat of ‘carbon tunnel vision’ and execu- tives from the GRI (Global Reporting Ini- tiative) have posed the question, “If we achieve net-zero emissions yet overlook hu- man rights, or fail to safeguard biodiversity, what will this mean for the wellbeing of peo- ple and planet?”


There is, of course, more to the ESG agen- da than the challenge of managing cli- mate-related risks. But it is equally true that all those other factors – of social pro- gress and environmental protection – will likely be impacted by the global climate trajectory.


When considering progress on the United Nations Sustainable Development Goals (SDGs), UN leaders, including Secretary- General António Guterres, have frequently noted that addressing climate change is key to enabling the achieve- ment of the other goals¹. And last year a range of UN-convened scientists issued a collective statement


asserting;


“Biodiversity loss and climate change are both driven by human economic activities and mutually reinforce each other. Neither will be successfully resolved unless both are tackled together.”² Unfortunately, governments have been tragically slow in acknowledging the need to develop holistic policies that encourage


PI Partnership – World Gold Council


decarbonisation while also driving many of the parallel or interconnected changes needed to ensure greater environmental protection and social progress. This was why the agreement announced late last year at COP26 to curb deforestation was so welcome, even if still, perhaps, not suf- ficiently urgent or ambitious in its timelines.


The question as to where climate actions fit within wider sustainability strategies might take an awkward turn if it is inter- preted as implying that a de-prioritisation of climate actions is needed in order to accommodate or address other ESG chal- lenges. Given that there are already warn- ing signs this year that we may be back- sliding on climate progress, we need to avoid any shift in focus that pulls us away from the agreed path to net zero. While there may, in practice, be unavoida- ble trade-offs between specific climate, biodiversity and socio-economic objec- tives, the routes to progress on each and all of them are intertwined.


Interconnections between climate change indicators and the SDGs


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