You don’t have to believe in climate change to feel its physical and financial impacts. Just as rising global temperatures are resulting in more frequent and intense wildfires, droughts and storms, we are already seeing the effects of the nation state commitments to transition to a low-carbon economy cascading through the financial system. Fossil fuel companies are rapidly losing favour with investors who are queuing up to put their money into renewable energy.
At Willis Towers Watson, not only do we believe the transition is already happening, but we have been preparing for it for some time. We have joined the Net Zero Asset Managers Initiative, committed to a Net Zero target for all our global delegated assets of $165bn and made a commitment to bring our own operational emissions to Net Zero.
Around 131 countries have now committed to or are considering a net zero target
Commitments to Net Zero targets by countries, companies and investors are increasing almost daily. Around 131 countries have now committed to or are considering a net zero target, including the US which rejoined the Paris agreement the day that Joe Biden took up his seat in the Oval office, and China, which has set itself the great challenge of carbon neutrality by 2060.
Such announcements are not merely policy signals: it is now clear that the world is moving in one direction, and fiduciary duty and investment decisions must be aligned with that new world.
There are three things we need to appreciate about the transition:
Net Zero targets are all very well, but implementation is where the real work starts. In order to achieve these ambitious targets, there are some essential items that we need:
The direction of travel on climate is clear but there will be a lot of uncertainty and complexity on that journey. The first step is understanding whether your actions move you towards your destination as all businesses will be required to transition to a carbon neutral position. This is particularly difficult but also particularly important for carbon intensive industries and businesses which in aggregate will pave the way to a low carbon economy… or not… but we can expect governments around the world to apply various levers to make it happen.
As a result, investors can select those businesses that engage with transition plans in a serious and comprehensive manner and hence have a better chance to be a winning business of tomorrow and provide investors with more sustainable returns on their capital in the longer term. To be able to do so successfully, we will all need collectively to change the way we think, act and invest.
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