Why $130 Trillion may not be wrong

The U.N. Climate Change Conference of Participants kicked off on Nov 1, 2021 and will go on through Nov 12, 2021. While there have been a number of material announcements regarding commitments to a net-zero future, here we take a look at the commitment from Glasgow Financial Alliance for Net Zero (GFANZ) chaired by Mark Carney, UN Special Envoy on Climate Action and Finance. This alliance brings together some of the world’s largest financial institutions that manage more than $130 trillion in assets. On Nov 3rd – christened the Climate Finance Day – they made several commitments:

• Set long- and short-term goals based squarely on science to reach net zero emissions of carbon before 2050.
• Bring together several existing and newly launched alliances together to align their responsibilities.

The Chancellor of the Exchequer, Rishi Sunak, announced steps to make Britain the world’s first net zero financial center, and outlined the following steps as requirements for corporations in U.K.:

• Set out plans by 2023 to transition to a low-carbon economy
• These plans must include targets to mitigate climate risk by 2050
• Interim targets, plans and reporting between now and 2050 to ensure close alignment.

I know what many of you are wondering: Wall Street in New York and the City in London are concentrated on making money. Are they getting sidetracked with all this “do-good” feeling?

The answer is: absolutely not. Not for a second would I accuse the financial industry of altruism. Here is one graph that tells you the story. It is a five-year comparison of the different S&P indexes compared to S&P 500 overall index.

First, S&P 500 has doubled in the five years - registering 113% growth. The S&P Energy Sector, dominated by the oil and gas industry[i], fell by 13%. S&P 500 Utilities[ii] Sector grew by 38% - anemic compared to S&P 500. And finally, S&P Global Clean Energy Sector grew by 168% in spite of the recent dramatic pullback.

Nov 4th was named the “Transition to Clean Energy” day. The main theme of the discussion was loud and clear: coal is out. Despite the absence of some of the elephants in the industry at the discussion table, the predominant users of coal are searching for alternatives. For instance, Australia, one of the largest exporters of coal, has not made any commitments to reducing it, its customers are making commitments to wean themselves off!

Corporations like NatWest have already eliminated coal-based industries from their portfolios and have committed to severely restrict future investments in fossil fuel-based industries.

No, the financiers are not being nice guys – they can read the numbers, probably better than we can!