Climate Voluntarism Won’t Deliver Needed Bank Action, Aviva Says

If the financial-services sector is to play a meaningful role in supporting efforts to limit global warming, climate action from banks and asset managers should be mandatory not optional, according to a high-ranking executive at Aviva Investors.

A wave of voluntary commitments to cut net direct and financed emissions to zero, as well as pledges to finance renewable energy and clean technologies, can only get us so far in addressing the climate challenge, said Steve Waygood, chief responsible investment officer at Aviva Investors. Speaking on a panel at Bloomberg's The Future of Sustainable Investing: A Decisive Year for ESG summit, Waygood said as long as bankers and investors can make money “doing the wrong thing” on climate, such as funding activities that warm rather than cool the planet, they will continue to do so.

"Can we rely on voluntarism? No, we definitely can't," Waygood said. "Voluntary has got us some way, but that’s the leaders taking action as they always do. We need the laggards. We need everybody, and that requires mandating."

Climate Voluntarism Won’t Deliver Needed Bank Action, Aviva Says

While financial firms generate comparatively few direct emissions, they are major contributors to climate change through their financing and investing activities, functioning as the money pipeline for the fossil-fuel industry. And though many of the biggest banks and fund managers have now made net-zero commitments to accelerate the transition to a low-carbon future, regulators could require that funds be directed away from polluting sectors and towards greener businesses. 

Banks, fund managers and other financial firms need to move faster to measure their impact on the environment and then set targets to improve their standing, said fellow panelist Cynthia Cummis, who’s a steering committee member at the Science Based Targets initiative.

Still, what exactly regulators can mandate is uncertain, Waygood said. For example, while disclosures and even net-zero plans could become obligatory, regulators can't require investor portfolios to be aligned with 1.5 degrees Celsius of warming when the economy in which they operate is on course for more than 3 degrees of warming, he said.

Getting the balance right is "a bit of a dance between the private sector and the regulators," said Eric Usher, head of the United Nations Environment Programme Finance Initiative, who also spoke on the panel. “We have to drop the notion that everybody needs to be doing something to essentially everybody needs to be doing everything,” he said. 

©2021 Bloomberg L.P.

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