What next after COP? Fund the future or face the fire
Speech given yesterday by Sir James Bevan, Chief Executive of the Environment Agency, to the Association of Foreign Banks.
Introduction: Earth’s burning, fetch the engines, pour on water
It’s a great honour to address such influential decision-makers at such a pivotal moment for our planet.
Many of you and the institutions you represent are based in the historic City of London. In 1666, the Great Fire of London started in Pudding Lane, close to the heart of the City, and destroyed over 80,000 properties. Some historians argue that the fire was able to spread because local leaders failed to take urgent action. When the Mayor was begged to create firebreaks, he famously scoffed that it was nothing to worry about and returned to bed. That ended badly for him and most of the City.
The Great Fire led to big changes in the way London was built to make it safer. To use a modern phrase in a seventeenth century context, what the people of London did was build back better. But if they had known the Great Fire was coming, they might well have acted sooner to prevent it or reduce its impact.
Today, we know an even bigger fire is coming for us unless we act now. Climate change is burning our planet. Since the Industrial Revolution, which was largely financed from the City of London, rising carbon levels from the burning of fossil fuels have been pushing global temperatures higher and higher.
We are already seeing the consequences – more extreme weather, rising sea levels, bigger than ever floods, extreme droughts, massive wildfires, ecological harm wiping out species, and rising impacts on the economy, the way we live, and the health and wellbeing of every human on this planet.
This is Earth’s Pudding Lane moment: we need to put out the climate fire before it consumes us, and build the better future we want not just for London but the world.
COP26: what just happened? And what now?
- You will have seen last weekend’s headlines on the outcome of COP26, the UN climate conference in Glasgow. Let me give you my take on the outcome and what it means. During the two weeks of the conference, several important side agreements were announced. The most significant were:
- A pledge by the US and China to boost their own climate co-operation, including on the transition to clean energy. That matters because there is little chance of tackling climate change successfully without collaboration between the world’s two biggest CO2 emitters.
- A commitment by over 100 countries representing about 85% of the world’s forests to stop deforestation by 2030. That matters because cutting down trees puts more carbon into the atmosphere and leaving them where they are absorbs carbon.
- A plan by more than 100 countries to cut 30% of current methane emissions by 2030. That matters because methane is one of the most potent greenhouse gases.
The final agreement adopted at the end of the conference – the Glasgow Climate Pact - commits all the 197 countries involved to strengthen their efforts to mitigate the extent of climate change, adapt to its effects and finance that work.
At Paris in 2015, countries set a target to keep average global temperature rise to less than 2°C above pre-industrial levels and as close as possible to 1.5°C. Before COP26, the planet was actually on course for a much more dangerous 2.7°C of global warming. The announcements made during the Conference put us on a path to between 1.8°C and 2.4°C. In the final Glasgow conclusions all countries agreed to revisit their commitments, as necessary, by the end of 2022 to put us back on track for no more than 1.5°C of warming. To help deliver on these promises, all countries agreed for the first time to phase-down “unabated” coal power - coal-burning without some form of carbon capture and storage to reduce its contribution to global warming.
COP26 was never going to solve all the problems of the planet in a fortnight. But what it has done is give renewed impetus to the global effort to tackle climate change. Its success will be measured not in this week’s headlines but over the next several decades by whether those commitments are actually implemented.
So what now? Coming out of COP26, I have three messages on where we need to go next. The first is a warning - about the risks, including to your businesses. The second is an insight: that successfully tackling the climate emergency offers massive investment opportunities for you and the rest of the business world. And the third message is a call to arms.
Let’s start with the warning: any bank, business or organisation which does not rise to the climate challenge will go the way of the dinosaurs - who also, incidentally, failed to cope with a changing climate.
The main messages out of Glasgow are brutally simple, and they apply to banks and other businesses as much as to the rest of us. They are that there is no future in carbon and that we must adapt or die.
After COP, investments in coal, oil and other forms of dirty energy are no longer safe bets. As more and more nations move to net zero, fossil fuels will increasingly need to stay in the ground. The market sees that and is on the move. Since the 2015 Paris agreement, coal’s share of global electricity generation has fallen from 39% to 35%, with wind up from 3.5% to nearly 7%, and solar from 1% to 3.5%. Renewable sources of energy now generate electricity at a lower cost than coal. The cost of solar energy has dropped from around $8 per watt in 1988 to 20 cents or less now. Smart companies, including smart banks, are getting out of carbon fast and divesting themselves of what will soon be stranded assets.
Smart companies are also keen to avoid costly lawsuits and massive fines. In the courts, big carbon firms are facing a new wave of climate litigation. In May this year a Dutch court ordered Shell to reduce its emissions by 45% by 2030. In August, a shareholder took an Australian bank to court over its financing of oil and gas projects – just one of a rising number of climate-related cases being brought against companies around the world.
Then there’s reputation. Investments have consequences. Smart companies want to be on the right side of the public debate. Financing businesses which will kill the planet is not a good look. And there is a growing movement of consumers who make their choices – including which banks they use - not just on price or quality but on the sustainability of the product.
Throughout history, the most important and disruptive changes have gone through the same cycle. First they are unthinkable, then they look impossible. After that they begin to become feasible, and then they start to happen - slowly at first and then suddenly.
Banks and businesses could choose to bet against the prospects of a low or no carbon economy. You might not unreasonably doubt whether every single politician in the world will deliver on all their fine words. But action on climate which may look politically difficult today could become a massive vote winner after the next devastating firestorm or flood.
You could also rightly ask whether it is technically possible to move to a low or no carbon economy. But much of the technology we need is ready now, and just waiting for the right investment or political will to make it viable.
And would you really bet against the climate emergency itself, which is driving the actions of the politicians and the market? Would you bet against the ingenuity of humans, who have a habit of coming up with game-changing solutions to seemingly impossible technological problems? Would you bet against the courts? Or the consumers? Or public opinion? That’s a pretty big coalition to risk your money on.
Insight: a massive opportunity.
Which leads me to my second message: tackling the climate emergency is a massive business opportunity.
A recent report by the Global Commission on Adaptation found that while it would cost $1.8 trillion this decade to make the world more resilient to the effects of climate change, that investment could yield over $7 trillion in net benefits. Investing in tackling climate change is one of the best investments possible. Not only will it avoid billions of dollars of economic damage, but as Kristalina Georgieva, Managing Director of the International Monetary Fund, has said “it can be win-win-win-win. Building resilience can be good for nature and ecosystems; it can be good for economic growth; at a time when economies have lost jobs it boosts job creation; and it can bring health benefits too”.
Here too the market is on the move and the first movers are making money:
- In 2020 Tesla became the world’s most valuable carmaker. Bloomberg estimate that Elon Musk owes his fortune almost entirely to technologies that reduce carbon emissions and that over $180bn of his roughly $200bn net worth was “green net worth”.
- In China, solar energy manufacturers are making big profits on rising global demand for renewable energy. Longi Green Energy Technology, China’s leading producer of solar panels with $8 billion in 2020 sales, has seen first-half revenues surge 74% to $5.5 billion from a year earlier, while profit rose 21% to 5 billion yuan amid a surge in exports.
The London-based company Satellite Vu uses satellites and infrared technology to provide real-time data on how green our buildings are, and recently raised £15 million to launch seven new thermal and infrared imaging satellites.
All businesses exist to make money. They all need to do well but in my experience most of them also want to do good. The reality today is that much of the business world is leading the way on climate and more and more of it is doing well by doing good. Much of the progress now being made, and perhaps the most decisive progress of all, is being made by you – by the banks, the pension funds and the wider financial sector.
Banks: Under Christine Lagarde, the European Central Bank is taking action on climate. It has set out its expectations of how banks should manage and disclose their climate risks and is an international advocate for an effective carbon price that reflects the true social, environmental and economic costs – a key condition for a successful green transition.
Here at home the Bank of England has committed itself to play a leading role in ensuring that the macroeconomy, the financial system, and the Bank of England itself are resilient to the climate risks and supportive of the transition to a net-zero economy. Lloyds, the UK’s largest domestic bank, has set itself the goal of reducing the carbon emissions it finances by more than 50% by 2030. Another UK bank, Triodos, aims to finance only projects with a positive impact on society and the environment, and has an extensive track record in financing successful renewable energy projects.
Pensions: for over 15 years now the Environment Agency’s own Pension Fund has generated strong financial returns by investing in companies that contribute to a sustainable economy. Our Fund has a commitment to reduce our listed equity emissions by 95% by 2030 and to allocate money to fund the low carbon transition and help build resilience. In 2017 we joined with the Church of England to launch the Transition Pathway Initiative, which empowers investors to align their portfolios with the goals of the Paris Agreement: it now has support from over 100 global investors with combined assets of over $39 trillion.
So far from gambling the planet away on dirty investments as some activists claim, let’s recognise that more and more investors are actually driving the evolution of the new economy we need to save the planet. And here’s a sentence I never thought I’d say: when we talk about tackling the climate emergency, let’s say thanks to the banks.
There’s another virtuous circle here. Not only can bankers and other investors make money by investing in tackling climate change, but successfully tackling climate change requires us to sustain and strengthen the open liberal trading economies that bankers and investors want for their own good reasons. As Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation, has said, investment at the scale and speed needed to transform our economies over the next two or three decades will be best served by open international markets for goods and services.
A call to arms
My third and final message is this: that however successful COP26 was, none of us is as good as all of us. Neither governments, nor businesses, nor NGOs, nor any of us as individuals can tackle the climate emergency alone. But if we all work together we can.
The Environment Agency is seeking to play its part. We are helping get to the UK to net zero by regulating down the greenhouse gas emissions from industry – and environmental regulation has just as big a role to play in tackling the climate emergency as financial and economic regulation. We are running the new UK Emissions Trading Scheme which caps, trades and reduces carbon emissions from industries like steel and aviation. We are helping the country future-proof itself by adapting to the changing climate, by building new flood defences and helping plan towns and cities that will not just be resilient to future climate shocks but even better places to live. We are working to build greener markets to attract private finance and ensure future investments are not just climate neutral but actively protect communities, habitats and our economy. And we are trying to walk the walk ourselves with our own commitment that we and our entire supply chain will reach Net Zero by 2030.
Final point. Our choices matter, and in tackling the climate emergency our financial choices matter more than ever. The Prime Minister of Barbados Mia Armor Mottley delivered one of the most powerful speeches at COP26, which has rightly now gone viral. She said:
“The central banks of the wealthiest countries engaged in $25 trillion of quantitative easing in the last 13 years. Had we used that $25 trillion to purchase bonds to finance the energy transitions or the transition of how we eat or how we move ourselves in transport, we would now, today, be reaching that 1.5 °C limit that is so vital to us”.
So – we can’t solve the climate crisis without you: the banks. You are the lifeblood of our economy and arguably have more power than most countries to create the change we need. That is why I am here today both to praise the work that you and the financial sector are already doing, and to invite you all to join the growing global coalition that is coming together to build a better world.
You can do that for many reasons. You can do it because it’s the right thing to do. You can do it because if you don’t you will be exposed to the risks I’ve outlined. Or you can do it because the right investments in the new green economy will make you and your clients a lot of money. But for whatever reason you do it, please recognise your own power to make a difference and use it.
Conclusion: make history, or be judged by it
History is all around us in London. The inscriptions on the Monument to the Great Fire of 1666, a few steps from Pudding Lane, tell the story of how the fire started, how much damage it caused, and how it was eventually extinguished.
How future generations remember how climate change started, the damage it caused and how it was extinguished it is up to us. On its own, COP26 could never put out the planet’s fire. But it offers us a path to do so. When historians look back at Glasgow, how they judge it will depend on what we all do now. Glasgow has set the ambition. It’s now up to all of us to turn that ambition into action. After Glasgow we have a choice: we can make history or be judged by it. Let’s make the right choice.
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