While the outcomes reflect incremental rather than transformative progress, the agreements reached provide a critical framework for future action.

The decisions taken at Baku offer a foundation to build upon at COP30 in Belém, focusing on scaling up mitigation and enhancing implementation mechanisms.

Key achievements

Despite negativity surrounding what was known as ‘The Finance COP’, there were some great achievements and agreements made during the conference which will go a long way to combating climate change and sustainability.

1. New Climate Finance Goals (NCQG)
The $100 billion annual target was replaced with an ambitious framework: $300 billion annually for developing countries by 2035, supported by a broader target of $1.3 trillion globally from public and private sources. Although this falls short of the demands of vulnerable nations, it represents a step forward in scaling climate finance.

2. Advancements in Carbon Markets (Article 6)
After nearly a decade of discussions, the framework for Article 6 was finalized, introducing the Paris Agreement Credit Mechanism (PACM) and a unified UN registry for carbon credits. While this framework requires further refinement to ensure robust safeguards and environmental integrity, it signifies progress in the contentious area of carbon markets.

3. Progress on Adaptation
COP29 concluded with an agreement to use no more than 100 indicators for reporting on adaptation progress, offering flexibility for countries to tailor approaches to local circumstances. The Baku Adaptation Road Map was also established, emphasizing the integration of scientific knowledge and the IPCC’s role in advancing the Global Goal on Adaptation (GGA).

Challenges and future needs

The outcomes of COP29 highlight persistent challenges in addressing the global climate crisis. Climate finance remains insufficient, with current flows falling short of the vast needs for a successful climate transition and the demands of developing countries.

Key issues were deferred, including the implementation of the Global Stocktake and clearer guidelines for future Nationally Determined Contributions (NDCs), leaving these vital topics for future negotiations. Moreover, no new commitments on emissions reductions were made, even as the escalating costs of climate-related losses emphasize the urgent need for proactive mitigation efforts.

But encouragingly enough, and despite the mood music in much of the popular press, the global economy is steadily transitioning toward sustainability, propelled by increased commitments from state and non-state actors. Notable initiatives at COP29, such as the Global Energy Storage and Grids Pledge, aim to accelerate renewable energy deployment, targeting a sixfold increase in energy storage capacity and a massive expansion of renewable grids by 2040.

While 670 GW of renewable energy were added to grids last year, capacity constraints blocked 3,000 GW of untapped renewable potential, highlighting the urgency of infrastructure expansion.

Additionally, accountability and transparency are becoming central to green initiatives, with private sector actors increasingly aligning financial performance with sustainability targets. Regulatory momentum is also growing, as over 100 countries now have green or sustainable finance regulations, a 40% increase since 2020.

Looking Ahead

The outcomes of COP29 lay the groundwork for COP30 in Belém to advance critical issues, including scaling mitigation efforts and improving adaptation mechanisms.

Achieving transformative change will require stronger commitments, enhanced transparency, and coordinated global efforts to align financial flows with climate goals.

While challenges persist, the incremental progress made at COP29 provides hope for a more sustainable and resilient future.

By Allegra Ianiri, research analyst at MainStreet Partners

As a founder member of ‘UK Wealth Managers for Climate’ 7IM aims to create positive impact through its focused environmental goals. Recognising the industry’s potential to leverage positive action, the group’s nine members, which have a combined total AUM of £165bn, have come together to sign a letter outlining three clear climate change ambitions for asset managers:

 Set a net zero commitment and ensure that targets are clear and transparent.
 Communicate the approach clearly to both the business and clients.
 Ensure that stewardship activities reflect net zero commitments and deliver tangible results.

These ‘asks’ reflect 7IM’s own sustainability goals including a drive towards cleaner investments and commitment to a 30% reduction in the carbon intensity of its Strategic Asset Allocations (SAAs) by 2026. Since 2021, the business has pledged to being carbon neutral through sustainable choices.

These include its partnership with the World Land Trust to offset its carbon footprint, the consolidation of office space to decrease its carbon intensity and reducing journeys by air to less than 1% since 2022. 7IM has also been a signatory to the UK Stewardship Code by the Financial Reporting Council (FRC) since 2021, which sets high standards for asset managers around accountability and responsible investing.

Jack Turner, head of ESG Portfolio Management at 7IM said: “The industry has a responsibility to champion the best ethical and environmental standards for our customers and future generations. At 7IM, we are committed to making a positive impact, creating long term value for clients as well as sustainable benefits for society, the economy and the wider environment thorough our responsible management of capital.

“We are proud members of ‘UK Wealth Managers for Climate’ and by signing this letter, we hope to encourage more wealth management firms to commit to a more sustainable future and join us in delivering positive change.”

In this video, – Conroy talks about how the first two years of the KBI Global Investors Circular Economy Strategy has set out its stall for future growth.

The video part of IA’s sister title Investment International’s II Awards Winner’s Story video series – which is being rolled out ahead of next week’s launch of the II Awards 2024-25 entry period, which starts on July 12. The II Awards will be open for entry until mid-August with the shortlisting to follow and results set to be revealed 25th Annual II Awards 2024 ceremony being broadcast on both IA and II on October 10, 2024.

Click here or on the image below to view the video

Subscribe to II here.

Environmental strategies abound, social themed strategies are fewer, but governance-themed strategies are rare. This could be because corporate governance is important for every strategy, and so is not seen a potentially value-driving theme.

Indeed, it is true that corporate governance is probably the least controversial of all ESG topics in terms of demonstrating their relevance to investors. But it’s hard to find an SI strategy in which governance does not feature in some way.

Few investors would argue that the evaluation of corporate governance and management quality should not play a role in investment decision making in any asset class. Yet, the weight we should attach to good governance is still often debated, or is inconsistent, and there is a lack of agreement on whether poor corporate governance has a direct negative impact on sustainability.

Different perspectives

Three common ways of addressing corporate governance are – as active owners advocating for better managed companies; in ESG integration from a financial perspective; and as sustainable investors from an impact materiality perspective.

As active owners, we advocate for high-quality corporate governance in the companies we invest in, as a matter of routine. There are two angles here. Firstly, we need so find out whether companies meet minimum standards of corporate governance. Then we can ascertain which companies demonstrate the best practices that we might ideally want to have in portfolios, or those that we think would actually support future corporate financial returns.

Minimum standards vs best practices

A minimum standards approach can help to avoid the worst forms of corporate governance that lead to risks of significant mistakes – even as intentional corporate actions – that put the future of the company at risk. We should realistically expect all investments to meet minimum standards.

Best practices are much rarer. Many companies across regions and sectors do not meet a ‘gold standard’, but have a good enough approach to be an acceptable investment risk, or not to detract from making a positive impact on sustainability or a profitable investment opportunity.

Yet, there is some nuance here, and judgement is needed. For example, in some sectors and countries, family ownership of companies is common, and boards can appear less independent than is typically thought optimal. However research suggests that family ownership also has advantages, and may be correlated with higher shareholder returns, but could become harmful at higher levels.

The nuance lies in determining the optimal level of family ownership. Ultimately, investors need to make their own risk assessments, and a holding that is suitable for one portfolio may not be in another.

Positive correlation for governance and financial materiality

From a financial materiality perspective, there is more agreement. Academic research points to positive links between good corporate governance practices and various forms of value creation. Research supported by proxy voting advisors Institutional Shareholder Services found a direct correlation between strong corporate governance and strong shareholder returns, profitability, dividend pay-outs and yields, and low risk.

Accounting scandals, bribery issues and abuses of power by management can often be traced back to poor governance practices, resulting in increased uncertainty and sub-optimal financial outcomes. Although we cannot claim that a company with strong governance will always outperform, there is sound rationale for all investors to pay attention to it.
Impact of governance on sustainability is less clear
When evaluating the impact that companies have on sustainability, the focus is usually on products and operations, and less so on management practices. There is little evidence so far that best practice corporate governance leads to more positive impacts than would otherwise be achieved. There is more support for the view that poor governance could have negative impacts, though there is no clear agreement on the mechanism for evaluating this. Again, investor judgment is required.

For example, Tesla is an often-discussed example of a company that does not meet commonly accepted standards of corporate governance, though its products play a role in the transition to a low-carbon economy. We have no commonly accepted way (yet) of evaluating whether poor governance detracts from the positive impact of products, so Tesla will be included in some sustainable portfolios, but excluded from others. This doesn’t make it wrong – just a different interpretation or philosophy.

Governance is a necessary foundation

In the SI field, sustainability has often been considered a proxy for good management. The reverse could also be true – good corporate governance could indicate that a company is capable of managing all areas well, including ESG factors.

In fact, good governance could be seen as the necessary foundation for all sustainable companies, as well as for all sustainable investment strategies. The G might seem neglected, but in practice, it’s everywhere.

By Rachel Whittaker, head of sustainable investing research, Robeco. 

The five global portfolios will target ‘best-in-class’ passive ESG-rated equities and bonds. Each model’s equity allocation will vary from 100% to 20% and will invest across a range of regional equity funds and/or two fixed income funds.

The equity element will invest in the Amundi SRI PAB equity funds, which track MSCI SRI Filtered PAB regional indices. These focus on the top 25% ESG-rated companies relative to their sector peers and have a wide range of systematic environmental- and social-based exclusions – for example, they exclude companies generating revenue from thermal coal mining or oil and gas extraction.

These indices also align with the EU Paris-Aligned Benchmark (PAB) regulation minimum requirements, including: a reduction in carbon intensity by 50%, compared to the underlying investment universe; and a reduction in carbon intensity by 7% on an annualised basis.

Meanwhile, the SRI fixed income element invests in two bond funds managed by Northern Trust Asset Management, which track Solactive Global Bond ESG Climate indices. These are focused on a global investment grade bond universe that is screened for ESG scores and carbon emissions, including targeting a 50% reduction in corporate bond carbon intensity compared to the parent index. EBI added risk in the SRI bond element is reduced by blending the two fixed income funds to target a shorter duration than the wider market.

See also: Pacific, Albemarle and Hymans Robertson model portfolios added to Parmenion platform

Jonathan Griffiths (pictured), investment product manager at EBI, said: “We know investors seek to invest in line with their values, while also seeking competitively priced investment solutions. With the launch of the SRI portfolios, we are in the sweet spot where these two elements align. Providing enhanced ESG screening, and market-leading equity exposure aligned with the EU Paris-Aligned Benchmark minimum requirements, these portfolios are an exciting addition to our product suite and the wider MPS space.”

Ashkan Daghestani, head of ETF, indexing, and smart beta sales for UK & Ireland at Amundi, added: “We are pleased to be selected by EBI, which will enable more and more UK investors to have access to our low-cost SRI index-based solutions. This partnership demonstrates our commitment to meeting the needs of UK investors, in particular for ESG index solutions at competitive pricing.”

EBI is part of Bristol-based platform Parmenion and has £2.5bn in assets under management. It runs a range of passively managed investment products including a Core ESG and Earth range for sustainable investors, and factor-based global portfolios, the World range, and Core, for market-based global exposure.

This article was written for our sister title ESG Clarity