- The financial sector's role in efforts to mitigate the effects of climate change is likely to be significant in the years ahead.
- Companies will also need to alter the way they run operations, embracing ideas connected to the circular economy.
From geopolitical tensions to the coronavirus pandemic and disputes over trade, modern life can often feel bewildering, insecure and disjointed.
One area where there does seem to be some renewed sense of unity is the environment. Just last week, U.S. President Joe Biden signed an executive order to re-join the Paris Agreement on climate change, reversing the Trump administration's decision to pull out of the accord.
A landmark deal reached at the COP21 summit in December 2015, the Paris Agreement aims to keep global warming "well below" 2 degrees Celsius above pre-industrial levels, and "pursue efforts" to limit the temperature rise to 1.5 degrees Celsius.
In a statement reacting to Biden's decision, the European Commission stressed the need for collaboration and consensus going forward. "The climate crisis is the defining challenge of our time," the EU's executive arm said, "and it can only be tackled by combining all our forces."
The role of finance
Politicians are not the only ones focusing on the environment. In a panel discussion moderated by CNBC's Steve Sedgwick, the financial sector's role in efforts to mitigate the effects of climate change was touched upon in some detail.
"In the finance industry, compared to where we were in 2015, there is just this undeniable and accelerating momentum," Rhian-Mari Thomas, chief executive of the Green Finance Institute, said.
"We're seeing huge inflows into … environmental, social and governance aligned funds," she went on to state, going on to explain that the scope of change taking place was widespread.
"As well as the interesting innovation that we're seeing and the pledges and commitments of individual finance firms and providers, what we're really seeing is change at the systemic level," she said.
According to the trade body for U.K. investment managers, the Investment Association (IA), the period between January and October 2020 saw £7.8 billion ($10.72 billion) placed into what it described as "responsible investment funds."
This, the IA said, accounted for 47.5% of all net money placed into funds and was four times higher compared to the same period in 2019.
In October 2020 alone, more than £1 billion was placed into these funds, a figure the IA described as the "highest monthly total on record." Still, work needs to be done: the IA said responsible investment funds' "overall share of industry funds under management" amounted to just 3.0% at the end of October.
Reinforcing her point of systemic change, Thomas referred to the Network of Central Banks and Supervisors for Greening the Financial System, or NGFS. Launched in 2017, the NGFS is made up of central banks and supervisors.
Breaking things down, it consists of 83 members and 13 observers. The latter includes institutions such as the International Monetary Fund and OECD, while members range from the Bank of England and European Central Bank to the U.S. Federal Reserve.
The presence of such big hitters is not lost on Thomas. "All the world's systemically important banks and many other financial institutions are now supervised by members of the NGFS that are committed to ensuring that the financial services system is aligned with the goals of the Paris Agreement," she said.
The challenge facing business
While the big picture may be changing thanks to global initiatives and collaborations, the issue of how individual companies tackle issues surrounding sustainability and the environment is also important.
Another member of CNBC's panel, Covestro CEO Markus Steilemann, sought to highlight the challenge facing his firm, a major player in polymers.
"We have two transitions to master," he said. "Number one is our massive energy intake needs to become climate neutral, carbon dioxide emission neutral," he added.
"And secondly, we have to master the raw material transition, so, going completely away from raw materials that come from coal, oil and gas towards renewable sources."
Steilemann also highlighted the importance of pursuing a circular economy rather than a linear one, an idea that's started to gain more and more traction in recent years.
"The materials we put out there do not need to end up — and must not end up — in landfill, and must not end up in the oceans … they must be recycled," Steilemann said.
"Secondly, we need to make sure that also our feedstock we are using is not coming from a linear business model and is not extracted from the ground."
Correction: The text of this story has been updated to remove an incorrect temperature conversion.