18: Finance, policy and society

Anna-Marie:
Hello, I'm Anna-Marie Slot, global ESG and sustainability partner at Ashurst. Thank you for joining me for another one of our 30 for Net Zero 30 podcasts, where I've been speaking with champions across the globe around real actions to take now to achieve 2030 goals. Today, I'm very pleased to be joined by Phil Drew, Partner in Brunswick's global business and society team and co-lead of the firm's climate practice. Phil advises the world's largest asset managers, banks, corporates, philanthropics, and climate investor networks. Thank you so much Phil, for joining us today. Perhaps we could start with a little bit of background about yourself and the work you're doing. I understand you were pretty busy last year with a global initiative. So maybe you could fill us in?

Phil Drew:
Fantastic. And it's an absolute pleasure to be part of this conversation. Thanks so much for inviting me. Yeah, a bit of background, bit more background on where climate fits within my world and the worlds that we advise. In addition to the beautiful description you just gave, I've also been, and continue to be, a special advisor to the UN High-Level Climate Champions for COP26, and moving also into COP27. So very much at the heart of where climate change, and the corporate climate agenda, is intersecting with the real economy.

Phil Drew:
But just to back up a bit, in terms of how we've been interacting with and encountering climate change. As a firm, Brunswick advises large, complex companies on their most critical issues. And also, their most critical stakeholders, across three interconnected worlds of finance, policy, and society. And really, the story of climate change becoming a long-term critical issue is the story of those three stakeholder worlds interacting. There's not a company, in any sector or any region of the world, whose business model is not going to be profoundly affected by these changing realities. And that has everything to do with the nature of climate change. It's a critical issues multiplier that's reshaping the demands of business across those three worlds.

Phil Drew:
So with that, climate change has really become intrinsic to the future of prospects, the future growth story of any business. And how to play a successful role in the transition to a zero carbon economy, and to do that credibly, has also obviously become a really critical issue for business. And we're certainly seeing that among the clients, the companies that we work with.

Phil Drew:
So we work with companies in some of the most complex, carbon intensive and, therefore, consequential sectors to decarbonize. Whether that's energy, transport, construction, food, agriculture, finance. And also, as you touched on in your intro, we advise many of the key multilateral efforts to really harness the scale, the dynamism, the resources, the skills, of the private sector. Whether that's the UN Race To Zero, which is bringing together the efforts across the real economy. And also, the Glasgow Financial Alliance for Net Zero, which I played a role in helping to launch. That's very much an effort spearheaded by Nigel Topping, but also Mark Carney, and now Mary Schapiro and Mike Bloomberg.

Phil Drew:
So given the criticality and the complexity of that landscape, you asked about what it is that we're focusing on. And companies and businesses that we're working with are really looking for support in three or four areas. One is, given the fast evolving nature of stakeholder expectations, to help them make sense of them. Both where they are today, but also where they're heading next. And then secondly, really to help them to define a journey for their business that will be recognized as credible, distinctive and, critically, also robust. And then finally, to find ways, and develop ways, of contributing to the sector and economy wide progress towards net zero. So taking action through the core of their business, but also beyond their business, in partnership with others. And being an advocate for the enabling conditions that will enable them to move faster.

Anna-Marie:
Interesting. And I think you've identified it in some ways already, but would be interested to hear, are you seeing the shift there... Are the conversations you're having today different than you had 18 months ago, 24 months ago, around these questions?

Phil Drew:
Yeah, I think we've seen a really significant shift over the last 18 months. Maybe not despite, but actually because of the pandemic, probably in six key areas. And I think Glasgow in many ways helped to crystallize some of those shifts. So just to take some of them in turn. I think the one thing that Glasgow's really helped to do is reset the political sat nav on the science. So creating consensus on the need to hold temperature at 1.5. That's a really massive and significant upgrade from the well below two degrees ceiling of intent, obviously, announced five, six years ago in Paris, in order to avoid the most catastrophic consequences of climate. And related to that, we've seen net-zero move from a niche to the organizing principle of the global economy, now covering an astonishing 90% of emissions.

Phil Drew:
Clearly, obviously, we're far from where we need to be on that. But what we've now got from Glasgow is the commitment to return in a few months' time, eight months' time, through an annual ratchet. To really help to close the gap between where we are, the trajectory we're on, and where we need to be. So the first one is, really, a global consensus now, or a political consensus, that's caught up, finally, with the scientific consensus on holding temperatures to 1.5. And that will be very significant, is very significant for businesses.

Phil Drew:
I think the second thing that we've seen alongside those, the emphasis on mitigation, is the elevated urgency of climate resilience. And it's quite topical that we're perhaps touching on that today. Given the IPCC is releasing a new report on adaptation to the most severe impacts of climate change, which we're seeing accelerating. And that's really important, that focus on resilience and adaptation. Because, in many ways, resilience and adaptation have been the forgotten half of the climate equation. And that's, of course, obviously, been a source of geopolitical tension for the global south, who are already reckoning with the realities of climate change right now.

Phil Drew:
So I think one of the things that we've seen over the last 18 months, but particularly around Glasgow, is the addressing of that imbalance. A real big focus on resilience. I mentioned in the background that I've been working on the Race To Zero, the effort to join up efforts across investors, across businesses, regions, and cities. But alongside the Race To Zero, the High-Level Champions, under the auspices of the UN, also launched the Race to Resilience, which is the sibling of that. And that is bringing together now two and a half thousand initiatives focused on building climate resilience in 100 countries. So the resilience agenda is really, really motoring. And we're going to see, I think, a further awareness and further action on that this year.

Phil Drew:
Related to resilience, I think we've seen a reframing of it. From being an obligation, an inescapable imperative, to actually something the private sector could contribute to. So very interested to see at the end of last year, I think Bank of America coming out with some statistics, predicting that the adaptation market could double to about $2 trillion a year within the next five years. So capital markets are already both seeing the imperative that they need to navigate in resilience, but also the economic opportunity to really invest in it.

Phil Drew:
The third has to be about finance and the scale of capital that's required for the transition, which we're now starting to see beginning to form. And crucially, a conversation that did evolve, has evolved, over the last 18 months, is broadening out beyond the billions that are necessary in public finance, to intended trillions in private capital that will be required for net-zero. And, here, I think the momentum has been massively significant. So if we think about 18 months ago, when the UK assumed the Presidency with Italy, there was just about $5 trillion of capital committed to align with net zero and 1.5 degrees. Now, we're seeing the entire waterfront of finance committed to that task, about 500 institutions, over $130 trillion in capital. So about a 25 fold increase. And they're motivated by growing evidence of climate risk. But not only climate risk as an investment risk, but also that the shift to a net zero economy is a historic investment opportunity.

Phil Drew:
I think BlackRock came out with some research, at the end of last year, anticipating that it can actually add 25% cumulative GDP growth, versus one in which we take no action. And so in practice, the role of finance is not just about pledges, but also about driving real change.

Phil Drew:
So what we've seen through the Glasgow Financial Alliance for Net Zero is the expectation and the commitment by those signed up to it. To set science based targets covering all of their finance emissions, publishing detailed sector specific emission reduction plans within 18 months of joining, and halving their fair share of emissions by 2030. So that's a really significant signal to governments, but also to the real economy. Looking ahead, I think we can expect an even deeper focus, more concerted focus, on implementation, mobilization of capital, particularly to developing countries and advocacy.

Phil Drew:
The fourth big shift, I think, has really added impetus to corporate net zero commitments. So we saw an aggregate, the number of companies setting net zero commitments tripling during the pandemic. And actually, fastest in the toughest sectors to abate. And that's really been driven by a convergence between policy, between finance industry and supply chains. And Glasgow really deepened that, particularly with the launch of the Glasgow Breakthrough Agenda. Which is bringing together world leaders, including across the US, India, EU, China, to really accelerate innovation, green technology in five sectors that are really critical to that. To halving emissions, electrical road transport, clean power, green hydrogen, green steel, and sustainable agriculture. So it's that convergence between those stakeholders, whose participation's absolutely vital that I think we've really seen.

Phil Drew:
But I think that the inevitable corollary fifth point to that main streaming of net zero commitment is a concern to distinguish the quality and credibility of targets and their implementation. I think we can expect, certainly the companies we're working with, I expect scrutiny by all stakeholders to intensify. I think about 5% of net zero targets are on track, one report earlier this year indicated. And it's not just NGOs, but also rating agencies and investors that are paying ever more close attention to the quality of implementation. That's going to be a really big, significant theme that we saw develop over the course of last year, and is really going to deepen this year.

Phil Drew:
And it's not just carbon, final point. I think we've seen over the last 18 months, a real progress, a real connection between climate and the nature agenda. I think Glasgow very much helped to establish that there can be no net zero for companies, or indeed for the wider world, without halting and reversing nature loss. It's mathematically impossible, in fact, for companies with land-based emissions to deliver on their net zero targets. So we saw a huge amount of attention given to that at Glasgow, with 100 governments, companies, investors, and also their supply chains. I think, especially as we look ahead to COP 15 on biodiversity... Which has obviously been rescheduled, but the intent very much to take place during this year. To be a real crystallization of that dual imperative, climate and nature. And what that means for business investors, as well as global efforts to accelerate to a more sustainable and more resilient economy.

Anna-Marie:
No, all fair points, and a really good overview of what's happened from the big picture. I think, Phil, that that was really helpful, and sharing how all of these aspects of climate change are getting more granular. And at the same time, getting more complex, just in case you didn't think it was complex at the beginning. But really bringing in lots of different things. I think, given all of these movements right and left, and the scale of it... And particularly, your points about adaptation, which I think people have a hard time getting their heads around, as well as the commercial connectivity between biodiversity and climate change. What does that mean for business? I think all those points are very hard for people to think through. Is there maybe one specific action or one thing that you think would really change the dial on this? And really enable people to meet those promises that came out of Glasgow, which got quieter and quieter? I think people forgot the volume of pledges that were made at Glasgow, or at least it's getting dim in the rear view mirror there.

Phil Drew:
I think that's a great question. Is there a game-changing action? I think the most significant lead for action is probably action consistent with commitment. So if I think about some of the efforts by the UN Race To Zero, there are roughly about 30 sectors in the global economy. And as we headed into Glasgow at COP26, and head out of it, obviously into 2022, we reach tipping points in terms of the scale of net zero commitment that's necessary to create exponential change in about half of those sectors. So the stakeholder general thing in 2022 is really going to focus on the shift from net zero commitment to transition plans that can drive net zero implementation.

Phil Drew:
So I think the one action is around the quality, high integrity, deliverable, transition plans that are consistent with the public commitments and targets made. And I think, crucially, there's increasing convergence around what those plans should look like. Covering all scopes, combining near and long-term goals, capturing the opportunity, as well as navigating the threats of the climate transition, driving progress across value chains. And providing transparency on progress, as well as advocating for the progressive enabling policies to make those plans deliverable.

Phil Drew:
And those transition plans, I think, is something that the civil society wants in order to distinguish greenwash from real net zero. And it's something that investors, lenders, credit rating agencies, also want in order to determine who are going to be the winners and the losers within sectors, as well as between them. And so I think we're seeing increasingly that global and industry level standards, tools, multi-stakeholder coordination, is really coming together to enable that. To really build a shared picture of what a credible, deliverable, and valuable transition plan will look like. So I think that, as we shift into an era of implementation of accountability, will be a key game changer over the next 12 to 24 months.

Anna-Marie:
Oh, definitely. So in light of that, can I ask you what your own commitment then is to net zero, in the next 12 months or so? Do you have a personal plan?

Phil Drew:
It's a great question. A big thing that I think I've been tried to be very intentional about over the last number of years has been how, through my role as an advisor on strategic communications and corporate relations, I can really make an impact. Both through clients, and helping them to navigate drive and innovate, particularly those organizations who can make a systemically significant impact. And also, through the various multilateral initiatives that I'm privileged to be part of advising on, whether that's Race To Zero or GFANZ. But on a personal level, the thing that I've been really focusing on over the last few months, I think, is my own pension plans. And how I can be really consistent with how I'm shifting and allocating my savings, in line with my convictions. So I think really trying to live some of those convictions, not just through lifestyle changes, how we fly, and what we eat. But also, how we invest for the future and save for the future has been a big focus for our family.

Anna-Marie:
Interesting. So we had a podcast before really focusing on the power of your own money, and the ability of you to control that, and send that message out to the wider financial system. Those have been fantastic points, Phil. Maybe one key takeaway for the listeners today? I heard lots of great things coming from you. This idea that we might not find the solution today, but certainly you got to put the transition plans in place today. And I think that's a common theme that we are seeing and hearing and giving out to people. But a key takeaway?

Phil Drew:
I think a key takeaway is that we need to close the ambition loop. So voluntary targets, voluntary commitments, voluntary transition plans, can only get us so far. But hopefully, that provides a signal to policy makers, to legislators, to regulatory supervisors, to mandate and to standardize some of these things. We're already starting to see the early signals of that. The UK, for instance, is mandating transition plans, as you know. And we know that other jurisdictions are interested in that approach too. But mandating the shift to implementation is going to be a really crucial facet. We can only get so far with volunteerism.

Anna-Marie:
Excellent, excellent. Well, thank you so much, Phil. It was a pleasure having you on today. Great work that you're doing, both across Brunswick, but also in all the groups that you're working on the Race To Net Zero. And really getting people focused on this critical, what to do now to deliver tomorrow. So thanks so much.

Phil Drew:
Thank you so much, Anna-Marie. It's been an absolute pleasure and really exciting talking to you.

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