Climate emergency but the investment industry can make a difference
Amarachi Seery, Sustainability Analyst, sheds some positive light on the latest IPCC Report which outlines the harsh reality of the current state of the climate.
- Regulators must play a part in climate change. Europe has already enacted regulations to improve transparency and reduce greenwashing in the investment space, which has boosted the demand for products that put sustainability at the core of the investment process.
- Becoming net zero is vital and requires commitment from all companies across all industries. The carbon neutral certification can be met to provide assurance that a company’s carbon neutral claim is robust and credible.
- There are big expectations for the upcoming COP26 meeting, where global leaders will discuss meaningful policy change to address climate change. We believe that this is an opportunity to be a part of something great.
The Intergovernmental Panel on Climate Change (IPCC) recently released the first instalment of its Sixth Assessment Report, which made for bleak reading. I would encourage everyone to read at least the headlines, which put into plain English the state of the climate emergency that we as a species are facing.
The highly qualified scientists involved in Working Group I spared nobody’s feelings when they delivered a truth that many of us try to ignore – that climate change is already with us and it will only get worse if we do not change how we do things as a species. This is evident in the flash floods that we have experienced in London, Hubei in China, Germany and many other places within the last two months. Wildfires have also devasted parts of the US, Algeria, Greece, Russia and several other countries. Our colleagues, friends and family are currently being impacted by climate change. As of the time of writing, many of Janus Henderson employees in Denver, Colorado are for the second year in a row having to contend with air pollution brought on by wildfires. Some have had to limit their time outdoors and have suffered sore throats and breathing difficulties.
As somebody who has only worked in sustainability roles my entire career, this grieves me because the IPPC report made clear that this could be our new normal and we are running out of time to put things right. However, working in sustainability is about being an optimist in the face of those who will tell you that what you are doing is ridiculous. When I first started looking at this in 2004, I was ridiculed as a ‘tree hugger’ and ‘sandal wearer’ and told categorically that there would be no job for me in the future. Oh, how things have changed.
Reading the full report (which is almost 4000 pages long) is not easy. While it has been written primarily for the attention of policy makers, there are some opportunities that investors can take from this.
- Regulators must play a part in climate change: The IPCC has clearly targeted policy makers because its experts recognise that the changes that are required need to be large scale. Bringing this to the world of investment, Europe has seen regulations in the form of the European Union’s (EU) Sustainable Finance Disclosure Regulation (SFDR) and taxonomy for sustainable activities. These regulations require asset managers to standardise disclosure around environmental, social and governance (ESG) integration, thereby improving transparency and reducing instances of greenwashing (providing misleading information relating to ESG initiatives). As a result, the desire for products which focus on environmental and social characteristics or have sustainable investment as their objective (referred to as article 8 and article 9 within the EU) has increased significantly.
- Becoming Net Zero Carbon is vital: The IPPC report put forward the science as to why everything will need to become net zero carbon before 2050. This is no easy feat. If it were, we would have done it by now. A fundamental component of tackling climate change is for companies worldwide to maintain a net zero carbon emissions footprint. This can be achieved by a combination of measures including, minimising consumption, purchasing renewable energy or energy offset certificates and, more widely, carbon credits from independently certified carbon emission reduction projects. Many organisations seek to obtain carbon neutral certification through the CarbonNeutral Protocol, which provides assurance that a company’s carbon neutral claim is robust and credible. Janus Henderson is proud to be CarbonNeutral® since 2007*.
- Climate Change requires collaboration: The crisis that faces us today is so large that it cannot be solved by one company. It requires collaboration across the industry and even outside of it. As part of our commitment to responsible investment, Janus Henderson is involved in a wide range of ESG-related initiatives as a member, supporter or in an advisory capacity. Please see the ESG section of our website for further details.
The work on climate change is not done and the situation looks bleak, but we are hopeful that this is surmountable. The scientists within the working groups for the IPCC think this too, otherwise they would not continue to write reports or do the scientific work (mainly on a voluntary basis) if things could not change. There are big expectations for the upcoming United Nations Climate Change Conference (COP26) in Glasgow from 31 October to 12 November 2021, where global leaders will discuss meaningful policy change to address climate change. We believe that this is an opportunity to be a part of something great, and one that we are also ready to contribute to.
*CarbonNeutral® certification applies to Janus Henderson Investors since 2017 and Henderson Global Investors prior to this date.
Please read the following important information regarding funds related to this article.
- Shares/Units can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
- Shares of small and mid-size companies can be more volatile than shares of larger companies, and at times it may be difficult to value or to sell shares at desired times and prices, increasing the risk of losses.
- The Fund follows a sustainable investment approach, which may cause it to be overweight and/or underweight in certain sectors and thus perform differently than funds that have a similar objective but which do not integrate sustainable investment criteria when selecting securities.
- The Fund may use derivatives with the aim of reducing risk or managing the portfolio more efficiently. However this introduces other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
- If the Fund holds assets in currencies other than the base currency of the Fund or you invest in a share/unit class of a different currency to the Fund (unless 'hedged'), the value of your investment may be impacted by changes in exchange rates.
- When the Fund, or a hedged share/unit class, seeks to mitigate exchange rate movements of a currency relative to the base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
- Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.
- The Fund could lose money if a counterparty with which the Fund trades becomes unwilling or unable to meet its obligations, or as a result of failure or delay in operational processes or the failure of a third party provider.