Will Oulton

The blue economy: COP-26 has highlighted the role of a vital natural asset.

Will says: “There's a big piece missing from the climate debate at the moment - our oceans, which play a critical role in climate and climate management. One of the facts about our oceans that isn't widely known is that  mangroves, sea kelp and seagrass are very effective at absorbing CO2, more effective than terrestrial forests in many cases. Yet we're witnessing a large amount of destruction of the marine environment which is a hugely important asset that can help in the fight against climate change. It's so disappointing and frustrating to see that part of our natural world and a natural defence against climate being ignored.”

He adds: “So while decarbonisation,  net zero and managing climate risk is a really important topic and will continue without any question, natural systems  are other aspects that we need to pay more attention to, so I'm hoping that post-COP this can become part of the narrative.

“If you look at the sustainable investment products available in the market, and we've seen a huge amount of growth in the last two years, driven by regulation and other factors, particularly in Europe, there's virtually none that do anything in terms of the blue economy, i.e. looking at oceans as an investment opportunity.”

Greenwashing funds will not help us find solutions to the climate crisis.

Will says capital flows away from carbon intensive sectors and into more solution-orientated businesses will be speeded up by the new regulatory drive to tighten up standards, which will help to mitigate greenwashing.

“Anybody who is a professional in this industry would welcome that. It’s a real challenge and a potential problem for confidence in sustainable investment, so the regulation’s objectives are widely supported across the industry. The key to it is enabling investors and their advisers to easily compare and contrast different products.

“We were already seeing some early stages of redirection of potential capital away from just basic ESG integration products into the more sustainable end of the scale products, which is exactly the intent of the regulation. This is going to be critical in supporting the economic activities around the world that can help mitigate the climate and sustainability challenges we have.”

Will says better data is the key. “It's an easy and at this point in time valid criticism that can be made about the sustainable investment industry that the data is both subjective and of poor quality. It's got gaps, can be  old, and 80% of it is unstructured. It’s improving all the time but is still in the early stages of evolution. How we structure it and how it sits alongside financial information is still one of the major challenges for the industry.”

The financial sector can lead the drive towards meeting net zero targets.

Will says companies and institutional investors have “limited confidence, if we’re being polite” that the net zero targets can actually be met.

“But it's our job to hold companies to account as shareholders to do that. We're looking into the future now, and there is the opportunity for shareholder collaboration through things like the asset manager Net Zero initiative, and others that will no doubt emerge.”

He adds: “We've also seen lots of financial institutions make commitments to net zero, and I think we're at the early stages of that. We've been doing similar work here at First Sentier, but for us to credibly and authentically make a net zero commitment we wanted to understand exactly how each of our different investment teams would be able to achieve that. We did not want to make a commitment to gain PR points, and then afterwards work out how we were actually going to do it.

“I suspect that many other institutions are also in the early stages and perhaps in three or five years time when we talk about progress along pathways and trajectories, they may look more positive. .”

Will says investors have tended in the past to think more about process than outcomes. “We have to ask what are you aiming to achieve and have you achieved it? We need to be honest about that, and I think there is a welcome evolution where we’re moving quite rapidly beyond just being held to account for a detailed explanation of the process of ESG integration.”

On the broader front, the sector should recognise its “strength as a powerful block of global capital that can have a major influence in helping push more rapidly some of the solutions we need to meet the climate and sustainability challenges the world faces”.

Moving companies from mitigation to adaptation means better disclosures.

Investors are very aware they don’t yet have the data they need to be able to assess where companies are in relation to climate adaptation, Will says. “We've got quite a high level of climate mitigation disclosures from companies, because they've been working on scope one and two and to some degree scope three emissions for some time. It's still not brilliant, it still has its flaws, and it's still not as comprehensive as we would like however, when it comes to climate adaptation, there are very few companies producing any information at all.”

He goes on: “If we are heading towards a 1.5 degree scenario, we need to think much more about physical climate risk because of the extreme weather conditions we will experience, and thankfully I don't think there's much dispute about the science on that anymore. And it's good to see the US back in the in the COP camp in terms of that as well, as it’s a material issue that hasn't had as much attention as the mitigation side. So I think we'll see a shift of attention.”

Avoiding two or three degree warming by 2050: my glass is three-quarters full.

“I think as we stand today, we're not moving fast enough. Will it change? I'd like to think so, so my glass is sort of three quarters full. 

“We can talk about semantics, about phasing out or phasing down coal, for example, and it's clearly not particularly helpful in what we need to achieve, but we don't have a global government to impose such things so we have to deal with the political and other mechanisms that dictate a lot of what happens in the global economy. I think post COP the direction of travel is right, I just worry as do many others about the pace of change.”