Insight

Washington post live recap: Protecting our planet

$100 – $150 trillion to reach net-zero

Katherine Blue

Katherine Blue

ESG Advisory Leader, KPMG US

+1 404-222-7606

A Washington Post Live event analyzed the role of private-public cooperation and the stakes discussed at the COP26 talks.

At the heart of the 2021 United Nations Climate Change Conference (“COP26”) was the role that businesses and the financial sector should play in solving the climate crisis. COP26 included 25,000 delegates from 200 countries and 120 heads of state who discussed increased commitments to addressing climate change.

Mark Carney, U.N. special envoy on climate action and finance, and Anne Simpson, managing investment director of CalPERS, headlined a Washington Post Live event on how companies can meet their climate change goals while remaining profitable and mitigating financial risk. The event addressed key questions, such as:

  • How can businesses and financial institutions step up to help solve the climate crisis?
  • How will these companies be held accountable?
  • Where do governments need to step in?
  • Is there an overlap between fiduciary responsibility and encouraging companies to be environmentally responsible?
  • How will the returns of ESG investments compare to more traditional returns? 

Structure and financing are key

According to Carney, businesses and financial institutions need to do two things in order to help solve the climate crisis. First, there needs to be a system for financial institutions of all types to make climate change a fundamental driver of decisions. Second, there needs to be significant investments from major financial institutions—to the tune of $100 – $150 trillion over the next three decades.

We need commitments from financial institutions that are of that order of magnitude in order not just to finance the projects we need... but also to encourage countries around the world to step up with more ambition of their own,” Carney explained.

Governments will need to step in to help create climate policies that support commitments to net-zero plans. At the same time, these plans will need to be formalized by financial and securities regulators.

Standardized reporting will lead to accountability

Carney and Simpson agreed on the importance of standard, transparent reporting for holding corporations accountable. Carney emphasized the usage of PCAF standards, developed by a global partnership of financial institutions for tracking emissions of companies in the financial services industry. Annual reports, external technical advisory panels, and stakeholders will also play a role in corporate accountability.

A priority coming out of COP26, Simpson added, is to create a global standard of climate risk reporting.

At the moment, we simply don’t have the data in a standardized, consistent, verified format integrated into the financials, which is what we need to make good investment decisions.
- Anne Simpson, Managing Investment Director, CalPERS

Expect a gradual transition to net-zero

Both Carney and Simpson urged the audience to adjust their expectations of what decarbonization will look like. For Carney, getting the global economy to net-zero isn’t a switch that can be flipped overnight. The most successful plans will gradually transition out of fossil fuel economies while transitioning into renewable energy and other clean sources of power.

From Simpson’s perspective as managing investment director, there are two sides to climate risk: the physical risk of volatile environments and global warming, and the transition risk, related to the changing business environment that will evolve to achieve net-zero. A measured transition plan balances both sides, both physical and transition risk

The returns of investing in decarbonization go beyond financials

As the moderator asked, why would companies invest trillions of dollars in decarbonization? Carney believes the answer is twofold: Government policy is making it more financially attractive to reduce emissions, and company stakeholders (from employees to suppliers to customers) want to align with sustainable companies.

Carney also compares investing in climate change to investing in digitization in the past. Viewed through that lens, investing in climate change is “an indicator, a proxy, if you will, for good and effective strategic management and value creation as a consequence.”

And as the trend toward environmental, social and governance (ESG) investing gains steam, judging success will require an integrated, holistic framework.

KPMG ESG leader Rob Fisher talks COP26

Rob Fisher talks ESG alignment and solutions offered through KPMG IMPACT.

Video transcript

There is so much positive action happening in the US and globally on ESG but the word of the day has to be alignment. Public Private sector and US global alignment on standards incentives and investments that work together to accelerate solutions across the globe, that's the key. Our research finds that the biggest challenge to net zero readiness is delivery capability the innovation, the technology and the solutions to make the goals a reality. So critically we've got to focus on not just increasing that capability, but ensuring access across the globe. And that's why KPMG IMPACT is prioritizing investments in emerging markets to bridge those gaps so we address these global challenges with global solutions.

Connecting Climate Risks To Financial Reporting

Maura Hodge, KPMG IMPACT Audit Leader, discusses the importance of connecting climate risk to financial reporting.
 

Video transcript

Climate action is definitely coming at companies from every direction. Investors, customers, suppliers, regulators and the general public. While 80 % of companies reported on sustainability only 40 % connect climate risks to financial reporting but that's changing quickly. We're seeing companies address these pressures by transforming their business with climate action in mind, developing a reporting strategy that both tells their story and complies with regulation, and preparing for assurance over their reporting. The question now is no longer why but how. Start now by driving consensus on what is material to your business and benchmarking against peers to gain an ESG advantage.

KPMG US’ Net Zero Journey

Darren McGann, Director of Corporate Sustainability at KPMG discusses how KPMG US has established an internal price on carbon to help accelerate the firm’s net zero journey.

Video transcript

Embedding ESG into a businesses operations is a challenge. But one area where KPMG is leading is Decarbonization. We have a multi-dimensional strategy but at its center is a 12$ per metric ton price on Carbon. Operationalizing ESG is hard but for us pricing carbon simplifies and accelerates our net zero journey.


How KPMG IMPACT will build a more sustainable future

KPMG IMPACT is ready to help companies transform their business models and develop operational strategies that enable a more sustainable, net-zero future. As the accelerator for KPMG global ESG strategy, KPMG IMPACT will support and empower KPMG professionals as they help clients reach their ESG goals.

With a recent $1.5 billion investment, KPMG is positioned to help our clients with their net zero and decarbonization pathways, to develop and operationalize ESG and climate strategies, leverage and utilize ESG data to drive better decisions and disclosure, and to invest in our people and their training on ESG capabilities. As the benefits of ESG are realized, KPMG is ready to be a market leader in delivering IMPACT solutions to our clients.