With climate action top of the agenda at the recent COP28 Climate Change Conference, there is no question that ‘something’ needs to be done, but views on what that ‘something’ is vary from government to government and from one individual to another. 

This is perhaps best demonstrated by the ongoing disagreements between governments on the draft climate deal wording. A version of the text put forward, calling for “reducing both consumption and production of fossil fuels” by 2050 has been criticised by some prospective signatories for not being strong enough.

At the time of writing, countries including Australia, the US, Canada, Japan and the UK have said they “will not be a co-signatory” to the deal in its current format. If you consider that the scientific community’s consensus is that continuing emissions will increase the severity of the impacts of climate change, coupled with an expectation that the global warming threshold could be hit in 2024, it seems almost unfathomable that the wording around commitments cannot be agreed by governments. Worryingly, this does not instil much faith around action. 

With the World Bank hanging a US$90 trillion price tag on meeting the 17 Sustainable Development Goals agreed by world leaders in 2015, the one certainty, that can be agreed by all, is that tackling climate change, and other environmental and social issues, is going to require substantial global investment. 

In 2015, 196 parties in attendance at COP21 signed the United Nations Paris Climate Agreement, committing to implement economic and social changes to limit the global average temperature increase to 1.5 °C above pre-industrial levels by 2030.

Since then, governments around the world have taken steps to try to meet this target including introducing carbon taxes, imposing caps on private-sector greenhouse gas emissions and implementing clean energy standards. 

The same year as signing the Paris Climate Agreement, the UK Government introduced Minimum Energy Efficiency Standards (MEES), stating that all commercial property in England and Wales must have an Energy Performance Certificate (EPC) rating of E or above. In September this year, incremental changes to MEES were announced, with all commercially rented buildings be required to have an EPC rating of at least C by 2027 and at least B by 2030 in order to continue to be let. 

While the government is at liberty to impose requirements such as MEES, it does not have the means to support individuals in meeting those obligations. As of November this year, the UK national debt was approximately £2.6 trillion, while the collective net worth of the 350 on the UK Rich List 2023 was more than £795bn.  Governments are continuing to accumulate debt, while private capital is on the rise.

This, of course, is not unique to the UK. In the first half of 2023, the stock of global debt rose to a record high of US$307 trillion, while the number of billionaires worldwide rose by 7%, with 157 new additions to the list. 

A willingness from investors to utilise their private capital to support these efforts will, in my view, be the only thing that will facilitate the possibility of reaching these goals. We have seen a growing interest in the environmental, social and governance (ESG) sphere from our clients and expect this trend to continue. 

The 2023 World Wealth Report showed that high-net-worth individuals (HNWIs) continue to express an interest in ESG products, with 69% of wealth management executives launching ESG-related products and offerings. 

While ESG-related investments are currently at the mercy of the interest and appetite of HNWIs, it would not be unprecedented for governments to eventually impose requirements for varying degrees of investment in this sector. Those who have not crossed the line already will, potentially, be dragged over by increasing legal requirements in the future. 

As risks and costs start to fall and returns continue to rise, many investors will already have their eye on the horizon for opportunities in areas that are on track to see continued and rapid growth. It will be interesting to see whether governments will mandate these kind of private capital investments, or whether the desire from HNWIs to do good, while still seeing a return on their investments, will be enough of a driving force to meet ambitious global targets.