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Insider UK
Insider UK
Peter A Walker

Scottish finance firms demand policy consistency to guide climate investment

Representatives from two of Scotland's largest financial services groups have called on governments and regulators to commit to long-term policies around renewable energy so they can follow with significant institutional investment.

During a panel debate at the Ethical Finance Global 2022 conference yesterday, they were joined by the City of London's policy chair Chris Hayward in arguing for more regulatory and legislative certainty to lure large sums from pension funds and asset managers.

"The problem with politicians is that we come and go, and policies change, so how do we maintain that momentum between now and 2050?" asked Hayward. "We can’t fall into the trap of talking the talk, but kicking the ball down the road.

"I'm aware that long-term goals, with measurable targets and transparent delivery are hard to do with politicians, committing to anything beyond five years really, but we just won’t achieve the net zero goals without this."

Hayward also came out against the disinvestment movement, calling it "a cop out" and instead favouring policies from both governments and investors which keep company directors accountable, with consistent metrics.

He was joined in this opinion by Eva Cairns, head of sustainability insights and climate strategy at abrdn, who said that while their fund managers could pull money out of polluting businesses pretty quickly, their shares would just be taken by someone else, so "it doesn't have much real-world impact".

She said that her team does a lot of work to analyse the actual environmental impact of its portfolio companies, but often the data "just isn't there", so they run into problems properly comparing and explaining overall fund alignment and 'temperature' figures.

"It's a real challenge for financial institutions to demonstrate with clarity what’s being done in terms of impact, as there's a lot of confusion in terms of terminology," explained Cairns. "Things like this could backfire and lead to accusations of greenwashing, as the numbers don't show things like policy advocacy and stewardship on our part."

When questioned about current environmental reporting standards for companies, she admitted that in terms of value chain emissions, around 90% is estimated.

These Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting business, but that indirectly impact its value chain.

"Scope 3 is critical, but disclosure rates are so low that the danger is that they could be completely different next year," said Cairns. "Similarly for in-scope assets, there's so little data that we take a phased approach until we can get a better picture."

She pointed out, however, that if money was only to be invested in developed markets where the data was better, significant opportunities to tackle climate change would be missed, so urged the industry to directly engage in emerging markets and real assets.

James Wilde, chief sustainability officer for the Phoenix Group, stated that the industry is at a pivotal moment.

"We need strong policy to make it attractive to invest at scale, as well as changes in regulation to help with this.

He pointed to offshore wind being really the only cost-effective renewable energy investment for institutions at this point, which is down to a "really stable policy framework", which helps reduce investment risk.

"We want to invest around £10bn in liquid assets held by our group companies - but that could increase that by a factor of five with the right policy and regulation."

Wilde also agreed on the data point, adding that Phoenix Group is looking to collaborate with others in the industry to consolidate and standardise its approaches and methodologies - as having an accepted benchmark is crucial to having informed conversations with customers.

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