The Finance Transition Centre (FTC), a think tank founded by former Aviva Investors sustainability chief Steve Waygood, has called for the introduction of “policy dependency disclosure” as a mechanism to accelerate climate action and improve the credibility of transition plans.
Under the proposal, companies and investors would disclose the policy measures they believe governments need to implement to make their transition plans economically viable.
In a new report, Waygood argues that asset owners should move beyond company-level stewardship and engage more directly with policymakers, on the basis that governments – not investors – control the policy levers required to deliver the climate transition.
Pension funds should view climate policy as a core fiduciary issue, he said, arguing that investors have both an offensive interest in financing the energy transition and a defensive interest in avoiding climate-related financial instability.
Speaking to IPE, Waygood said: “Transition governance is precisely the paradigm that encourages voice and action, not exit. Without this, there will be no transition.
“That London Climate Action Week (LCAW) itself has been hosted during some of the hottest days in London this year has not gone unnoticed by anyone.”
Under his proposed “transition governance” framework, investors would use their influence to encourage governments to implement policies that make low-carbon investment more attractive and address what Waygood describes as a systemic market failure.
“Transition governance – when backed by policy dependency disclosures – represents a paradigm shift in market practices by companies, investors, regulators, governments and the multilateral system. It recognises that while climate change is a market failure, it is for governments to correct,” he added.
The proposal builds on debates around corporate climate transition plans that have gathered momentum since COP26. Supporters of the UK Transition Plan Taskforce (TPT) framework have argued that one of the most valuable aspects of transition plans is the disclosure of policy, regulatory and market conditions needed to achieve climate goals.
Waygood also argues that net-zero investor coalitions have struggled not because of a lack of commitment from market participants, but because governments have failed to deliver the policy frameworks that such initiatives assumed would be in place.
Climate finance reaches record levels
Waygood’s proposal comes as climate finance continues to grow. According to Climate Policy Initiative, global climate finance reached $1.9trn (€1.66trn) in 2023, while private-sector investment exceeded $1trn for the first time. However, the organisation has said substantially more capital will be required to meet global climate goals.
Asset owners, particularly pension funds and sovereign wealth funds with long investment horizons, have a dual interest in supporting the transition, Waygood told IPE.
The first is the investment opportunity presented by electrification and clean-energy technologies.
“Renewable energy and battery technology are now cheaper than fossil fuels in most parts of the planet and therefore seeing demand surge due to the contemporary energy crisis and Strait of Hormuz,” he continued.
The second is the need to protect long-term portfolio returns from the risks associated with unchecked climate change.
“Second – and much longer term – there is the very powerful argument that the financial system is at risk of potential collapse if we allow the physical risks of runaway climate change to manifest,” he added.
“Any pension trustee with long-term fiduciary horizons and a recollection of the last global financial crisis should be deeply concerned about such a prospect,” said Waygood.
