March 10, 2022

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What will be the impact of COP 26 on hiring across Financial Services?



In the early November, World leaders, together with thousands of negotiators, government representatives, businesses and citizens were brought together in Glasgow for twelve days of talks at the 26th UN Climate Change Conference of the Parties (COP26) to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change. Several agreements have been reached at the conference. Thus, it is worth looking into the impact on recruiting across Financial Services under these agreements.

What regulations/agreements have been drawn up?

An important goal of the conference organizers is to keep a 1.5 °C temperature rise within reach, in line with the agreements of the UN climate conference 2016 in Paris. To achieve the goal, four agreements have been drawn up at COP26. Firstly, 140 countries pledged to reach net-zero emissions, in which 90 percent of the current global greenhouse gas emissions are included. In addition, over a hundred countries, including Russia, Brazil, Canada, the US and China, have committed to reverse deforestation by 2030. It is also worth noticing that Over 40 countries agreed to eliminate the use of coal power in a gradual stage, and the COP26 Coal to Clean Power Transition Agreement was signed by 23 countries pledging for the first time to stop constructing and issuing permits for new coal plants. Key players of the global financial sector, including HSBC, Fidelity International and Ethos, have publicly promised to effectively end all international public financing of new unabated coal power by the end of 2021. Lastly, the governments of 24 developed countries and several major car manufactures such as BYD Auto Ford, GM, Jaguar Land Rover, Daimler and Volvo agreed to “work toward zero-emission sales of new vehicles and vans globally by 2040, and in major markets by no later than 2035.”

Which countries have gained/suffered the most?

The decision that drew most public attention with it was, by no doubt, the announcement regarding the use of coal energy in the future. Over 40 countries, including coal heavyweights such as Vietnam, the Ukraine and Poland, have pledged to get rid of their coal industries by the latest 2040. Especially the countries, that still do rely on the use of coal for their electricity supplies are facing major challenges. It remains to be seen, how especially the poorer countries will face this issue. One way would be heavy investments into renewable energies. Who will pay for all this? This remains the decisive question.

The pledge to reverse deforestation by 2030 might impact the countries that rely on their forestry industry such as Russia and Brazil. It is southeast Asian giant Indonesia however, that takes the hardest hit in this field. As stated by Siti Nurbaya Bakar, Indonesia’s environment minister, “forcing Indonesia to zero deforestation in 2030 is clearly inappropriate and unfair”. In 2012, the upstream timber industry contributed more than USD 14 billion to Indonesia’s economy. In the forestry sector, up to 17,000 jobs are to be created on average per year between 2014 and 2030 under the Indonesian governments Green Economy scenario. Further legislation that would limit deforestation will result in a reduction in this vital domestic industry, paired with a significant loss of tax revenue in the Indonesian economy. The Indonesian government has a very difficult challenge ahead: To protect the unique rainforest environment while also generating tax revenue to further develop the country.

Several big financial services have responded to the COP26.

Morgan Stanley analysts Stephen Byrd and Laura Sanchez stated that, “Key technologies to decarbonize the US power sector include renewables, battery storage as a supporting technology, and green hydrogen. This has positive implications in our cleantech coverage universe.”

On November 10th, during the COP26, BlackStone announced that Dr. Jean Rogers, Founder and Former CEO of the Sustainability Accounting Standards Board (SASB) will join the firm as its Global Head of Environmental, Social and Governance (ESG),

BlackRock declared an initial financial close of $673 million for its $1 billion Climate Finance Partnership Fund (CFP) — a blended finance fund that is expected to deliver vital equity investment in emerging markets’ climate infrastructure including countries across Latin America, Africa and Asia,p

Goldman Sachs launched a report- Carbonomics: Five Themes of Progress for COP26 to analyses five keys of change they believe can drive progress. For example, Goldman Sachs plans to reach meet Net Zero by 2050 with a cumulative US$56 trillion of green infrastructure investments and a rise in ESG to drive capital towards de-carbonization.

What will be the impact of COP 26 on hiring across Financial Services?

After Cop26, the UK government declared that financial corporations which control around 40% of global assets — USD130 trillion- have signed up to 2050 net-zero goals including restricting global warming to 1.5C. In addition, as stated by UK Chancellor Rishi Sunak, Britain is expected to become the first country that requires all financial institutions and listed corporations in the UK to submit a proposition to transit to net zero by 2023. To achieve the objective agreed on COP26, it is essential for the company, bank, insurer and investor to adjust business models. This leaves us the question- “Is it an opportunity or risk on hiring across financial services?”

To see on the bright side, the transition to Net Zero is generating the largest business opportunity. Compared to the current high-carbon pathway, the profits of switching to a low-carbon path are expected to exceed $26 trillion by 2030. With the new COP regulation, several companies especially the ones in the green industry and sustainability industry such as Tesla and Northvolt will certainly benefit from new green infrastructure investments or be relatively well prepared for the transition compared with their peers. Another potential opportunity that is worth noticing is the green infrastructure financial fund that impelled by the COP26, for example, the Climate Finance Partnership Fund (CFP) fundraised by BlackRock with catalytic capital raised from the French Development Agency (AFD), KfW Development Bank (KfW) Japan Bank for International Cooperation (JBIC), Grantham Environmental Trust, the Quadrivium Foundation, and TotalEnergies. The CFP investments vehicle’s focus on climate infrastructure will create a significant opportunity to enter the field of clean power generation including distributed generation; energy efficiency in residential, commercial industrial sectors; transmission, distribution and energy storage solutions; as well as possible ultra-low emission or electrified transportation and mobility. Therefore, it is rational to say that the green industry is clearly the future and now is the perfect timing for recruiting.

On the other hand, what must not be overlooked is the potential obstacles the new agreements bring to the financial services particularly firms that will face higher costs due to higher carbon prices. In addition, it requires a substantial redirection of global investment flows under the process of shifting the global energy system to a below 2°C pathway. This might lead to difficulties for some companies to pass the extra costs on the higher prices. This leaves them challenges to build the framework in order to allocate capital to manage climate risks and seize climate opportunities.

Hence, it can be concluded that the financial industry is dependent on a green future since climate change and the different kinds of crisis it provokes (natural disasters, mass migration etc.) would heavily impact financial markets.