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Dear delegates of COP28 — all 70,000 of you who have walked, ridden a bicycle or sailed to Dubai to save the world’s bacon. This column wishes the Conference of the Parties every success. Its selfless pursuit could not be nobler.
By contrast, I merely write for people who want enough moolah for a dignified and fun retirement. We care about climate change — of course we do. And we know that private savings are essential to funding a path to net zero.
I have run money for institutions and retail clients alike. And I have written research on most of the 16 topics you are discussing over the coming days. Also I was once the head of responsible investing at an asset manager at the forefront of allocating capital sustainably.
Skin in the game, you could say. That said, the “critical role” that gender has in reducing emissions eludes me. And I will leave your climate science, as well as technology sessions, to the experts too. I haven’t a clue, frankly.
Based on my finance background, however, please see some suggestions I would love you to consider on behalf of my readers. There are many more ways to help investors help the planet. But the following six are the most urgent, in my view.
First, please force regulators around the world together to define what is and isn’t a sustainable investment. For now it’s a free-for-all. Asset managers should not be deciding which company is greenest or labelling sustainable products based on their own criteria.
They (and we) have to be told. Even in Europe, the region leading the way in green investing, some sustainable funds contain oil and gas companies while others do not. The existing definitions could not be vaguer.
Some argue, for example, that Shell should be classed as sustainable given it invested $4.3bn on “low-carbon energy solutions” last year. Fair enough. Or why not a company rapidly reducing its carbon footprint, rather than one with low emissions to start with?
Without clear definitions, managers don’t know which securities to put in green funds and investors don’t know what they are buying. And when that happens you know a tsunami of lawsuits is coming. No one wins then.
Prescriptive rules are necessary, but not everywhere. My second plea is for COP28 to cease asking businesses to do the work of governments or regulators. Bosses have enough on their plate. Asking them to analyse the emissions of every link in their supply chain is too much.
Indeed, how about allowing market forces to help push companies towards net zero? Provided regulators are clear on what data must be disclosed, capital will flow towards the greenest firms of its own accord — assuming that is what investors desire.
Or why not grease the invisible hand even more, which is my third ask? At the moment, readers with money in sustainable funds pay the same tax on any dividends and capital gains as those invested in S&P 500 or commodity ETFs. That cannot be.
Sure, there are huge tax incentives out there, led by the Inflation Reduction Act in the US. Europe has its Green Deal and Innovation Fund subsidies, and tax breaks on green research and development.
But these mostly benefit companies themselves or their early backers. It’s true that equity funds also receive a return boost if their holdings pay less tax. These are hard to calculate in aggregate, though. Far better to encourage people to invest with a tax break they can see.
Maybe one reason governments are reluctant to do this is because they understand what I’ve argued for years: that investing in secondary market securities such as equities doesn’t help the planet, because no new capital is being committed.
This, however, leads to number four and five on my COP28 wish list. Four is making it much easier for small investors to engage with the public companies they own via funds. Yes, buying equities impacts nothing. But voting your shares certainly can.
Again the large asset managers — including those where I used to work — are doing an excellent job here. They have big teams of analysts whose job is to encourage companies to change behaviour. But they receive little feedback from their underlying investors as to what to prioritise.
Some will say that’s the whole point of discretionary management. However, with modern technologies it should be much easier to lay down a more direct line of communication between companies and the ultimate owner of their equity.
Plea number 5 recognises the limitation of secondary markets when it comes to a low carbon future. If investors really want to be green, they need to hand money directly to companies helping the transition. And withdraw it from those that ain’t.
The truth is that primary market investments, such as private equity, venture capital or direct lending remain inaccessible to most FT readers. And even if not, these asset classes still do not exist at a scale required to reach net zero.
So delegates, we beg you to do everything you can to create more direct funding vehicles. While you’re at it, somehow relax the rules around who can put their money in them. Today, most regulators around the world deem them only suitable for sophisticated investors.
My final request is for humility. To be sure, climate matters. But as far as investment returns are concerned, so do trade, demography, productivity and so on. Without new wealth, there’s no money to save planet Earth.
Cut us investors some slack, therefore. Make central banks concentrate on inflation and growth. And be optimistic. Human ingenuity has solved every other crisis. You’re reading this in a desert, for goodness sake!
The author is a former portfolio manager. Email: [email protected]; Twitter: @stuartkirk__
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