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Net Zero: Why now?

November 4, 2022

Adam Gillett, Head of Sustainable Investments at WTW speaks to Isabella Martin, Senior Associate at the Thinking Ahead Institute (TAI) as they argue that addressing climate change sooner rather than later is in the best interests of investors and their beneficiaries. TAI’s paper ‘Pay now or pay later’ covers the evidence behind this in even greater detail.
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Net Zero: Why now?

Video transcript

Net Zero: Why now?

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SPEAKER 1: Welcome to WTW's ESG In Sight Spotlight Series.

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ADAM GILLETT: Hello. This video form is part of our net zero session. My name is Adam Gillett. And I'm here with one of our climate specialists, Isabella Martin. And here to discuss climate change and the climate crisis.

So to me, Issy, the climate crisis feels really very immediate at the moment, on a personal level, and a professional one. And almost oddly, it feels like there's never been more focus on it. But I can't see that the investment industry is doing anywhere near enough to cope with the climate crisis, the challenges it will bring, and deliver on its net zero commitments. And so something that might feel like, and sound like quite a harsh assessment, but do you think it's a fair one?

ISABELLA MARTIN: Yeah, I think that's a totally fair assessment. And that's why at the Thinking Ahead Institute, we produced a paper because we wanted to dive deep into the evidence and analysis, and really try to drive climate action, because basically, humanity is not on a path towards 1.5 degrees warming. I mean, optimistically, we're looking at 1.8 degrees warming by 2100. And if we continue along this business as usual path that we're on, it could be more in a range of 2.7 degrees to 3.6, which is obviously huge.

And we also need to take into account historical underestimations of the effects and impact of climate change by climate scientists. Political lobbying, which has slowed the pace of action for the last 30 to 40 years, the fact that we can only run one path into the future. And then three degrees is looking much more likely and also much worse. So we have a choice. We can either transition the economy to net zero carbon, or we can transition the climate to a state that's deemed unsafe by scientists.

ADAM GILLETT: Well, that sounds like a pretty easy choice to me. I think we just need to transition our economy. And if you take stock of where we are at the moment, we're already experiencing 1.2 degrees of warming in the world, and seeing some really horrendous physical impacts and manifestations of climate change. So the heatwaves in Europe, the devastating flooding in Pakistan at the moment, wildfires, droughts. It sounds and feels quite apocalyptic at times. And that's even before we think about and account into the future for climate tipping points.

So we have the evidence, and what feels like an overwhelming amount of evidence, to act now. We've got most of the tools to do it, and we can gather more as we go on the way. So the obvious and simple question is why aren't we acting now?

ISABELLA MARTIN: Well, I think change is hard, and I think we can all recognize that. But what we wanted to address was actually a different issue, and this is the misconception about the cost of acting versus the cost of not acting.

So the cost of acting, there is some, but it is materially less than the cost of not acting. And you can see on this diagram, we basically have a choice. So we can pay later. And if we account for climate tipping points, which will magnify the cost of not acting, we could see a 50% to 60% loss in existing financial assets globally, and which is obviously huge. And that's with a business-as-usual scenario that doesn't account for climate risks.

And then if we choose the pay now option, we could actually see a 15% loss to existing financial assets. But this estimate could also be mitigated by the benefits of new primary investment. And then add to that, if we really concentrate on an orderly as possible and highly-coordinated transition, we could further mitigate these transition costs.

ADAM GILLETT: So that just makes total sense to me. And whilst it's easy to be quite downbeat about where we are and where we're heading, a much more motivating message is a positive and hopeful one. And so what I think we need to do is find that positive message and framing, as you say, that really resonates and drives and motivates people into action, and unleashes what I think is really the potential of our collective as an investment industry to drive positive change.

ISABELLA MARTIN: I totally agree. And the thing is that we can have hope because there's good news. We can preserve the planet in its somewhat current form if we act now. But the more serious news is that if we don't act and we don't move towards a transition immediately, we'll suffer the consequences. And these include, but definitely not limited to, increased adaptation and physical risk costs.

And so we have this choice, to act now or act later. And what we need is we need governments to fully implement proposed policies. And we need a recognition by the investment industry that they're part of the economic system that has to address this.

And so that's what we try to do with our paper. We tried to reframe this notion of cost. But we also hear that once you accept that reframing, people are asking, what do we do now? So the Thinking Ahead Institute has also done a lot of research into solutions, which we've linked out to in our paper, and we've also included in the show notes.

ADAM GILLETT: Wonderful. And I know that we're going to explore some of those in the other videos in this series. So that just leads me to say thanks so much, Issy, for your time and knowledge. I really, really appreciate it.

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