Introduction

Now that the curtain has fallen on COP26, and the actors have left the Glasgow stage, we are left to sift through the seemingly endless reviews. The fact that there has been so much commentary reflects the growing societal interest against the backdrop of an increasingly realised climate emergency. The overall verdict from the commentariat was mixed; genuine progress in some areas but others that appear to fall short in meeting the outcomes.

There is a certain amount of expectation management required. Getting nearly two hundred countries around a table to reach any consensus is a mammoth undertaking. Also, for all its perceived faults, the Conference of the Parties (COP) is perhaps the only effective platform for the voice of developing countries. Furthermore, in the absence of major agreements in some areas, what happens in between COPs is probably more important that the outputs of the main event. Little progress will be made if everything is boxed away and only rolled out again when the COP theatre rolls into the next town; in this case Cairo in 2023.

Rather than issuing yet another thought piece, we wanted to focus on what the outcomes of COP26 mean for the financial services industry, and the relevance for us here at Blackfinch.

Key Outcomes

COP is focused on global approaches to meet global challenges, but the finance sector often took centre stage during the conference, and initiatives that came out of Glasgow are relevant to the financial services sector specifically.

First, an International Sustainability Standards Board (ISSB) has been established with the aim of developing a consistent standard on climate and other environment, social and governance (ESG) issues. This recognises the barrier that broad and inconsistent frameworks and metrics have sometimes been when it comes to integrating ESG into investment processes.

Second, in the UK new proposals would force firms to disclose their plans on transitioning to net zero. While the proposals will have to advance and ideally be accompanied with appropriate frameworks, this is timely as at Blackfinch we have recently begun developing a plan to measure and reduce our own carbon footprint to help become a stronger, more sustainable company.

Third, several new climate investment initiatives were presented in Glasgow as part of the Climate Finance Delivery Plan, which reinstated the Plan’s commitment to mobilise up to $100bn per year to sustain and accelerate the energy transition in emerging and developing economies. The UK communicated it will devote £576mn to unlock these investments, strengthening its international climate financial commitment by adding up to £1bn more in 2025, reaching a total of £11.6bn over five years.

All the above announcements will have to be developed further, but the theme is that the financial sector has a crucial role to play in adapting to a more sustainable long-term future, in a transparent, collaborative manner, which complements Blackfinch’s own purpose and approach.

Reflecting on Blackfinch's Engagement Approach

Using a simple metric such as the number of articles published post-COP is a reliable indicator of the exponential growth of public interest and awareness since COP23, which took place in 2017. This rise is incredibly important in holding governments to account for the vital decisions and changes that must be made. Glasgow saw the largest representation of business in the history of the COP. Government, rightly, holds the main levers, and business should not be seen to dominate the process. However, it does demonstrate the importance of collaboration and the coming together of the public and private sector. No one can solve these issues alone; continued interaction, engagement, and accountability is the only way to achieve what desperately needs to be achieved.

Therefore, engagement forms an essential part of our approach to ESG at Blackfinch Asset Management. It would be wonderful to think that every stakeholder in the future of this planet, be it individuals, corporations or ruling parties, is doing everything they can to ensure a more sustainable future, but in reality, this is far from the case. Increasing public awareness of the challenges we all face, and the various ways in which we can help to bring about change, is a vital piece of the puzzle. One such way of driving change is through active ownership within your investment portfolio.

The power shareholders wield in shaping the direction of companies in which they are invested should never be underestimated. There are many ways through which this power can be expressed, such as active engagement with company management to identify weaknesses and opportunities, or through active voting to ensure improving company behaviour. We must remember that by being a shareholder we are essentially a part-owner in that company, and we must embrace and apply those powers, while also accepting the responsibilities this brings. We select investments with fund houses that share our views on the power of engagement and active ownership, to ensure the shareholder power which our investors have is not squandered. The improvements in a company that can be driven by our engagement efforts can not only bring about essential change at a corporate level, but we believe also result in financial benefits, as the company’s future in an ever-changing corporate landscape can be secured and the risks of being ‘left behind’ can be overcome.

Through Blackfinch Energy, our specialised renewable energy team, we currently own and manage a portfolio of 96.5 Megawatts (MW) of Tier One wind and solar projects across the UK. Since the beginning of 2019, we have carried out ten transactions, adding 68MW of capacity. We recently closed our single largest transaction, the Three Maids solar farm, with an installed capacity of 25.7MW and an expected annual production of 28.8 Gigawatts (GW) per annum. The team is currently working on its first internal development project, the Ark Hill Extension wind farm, which is located next to the already operating Ark Hill wind farm, and is estimated to commence operations in 2023, subject to planning consent.

We all have a role to play in securing a sustainable future, and we must acknowledge and embrace the fact that there is very little that a shareholder can achieve when acting alone, but very little that cannot be achieved when we work together.

Supporting You

We are hoping and expecting the momentum coming out of COP26 will continue into next year and beyond. Pledges should become credible targets and initiatives should develop and issue appropriate, accompanying tools. We are here to help you break through the noise, so look out for future updates and supporting materials.

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