GSIA Report Identifies Misaligned Incentives for Investors and Policymakers at COP 29
London UK., November 14, 2024 – As investors and international policy makers gather at COP29, The Global Sustainable Investment Alliance (GSIA) released its report Transforming Global Finance for Climate Action: Addressing Misaligned Incentives and Unlocking Opportunities. In addition to offering specific recommendations to the policymakers at COP29, the report identifies barriers to sustainable investment and the actions needed to encourage the flow of capital to the projects needed to address climate change.
Dubbed the ‘Finance COP’, COP 29 is expected to see a new climate finance goal dominate headlines, but GSIA have identified systemic misalignment keeping private investment and policy making out of step. National plans currently fall far short of what is needed, and significant private finance must be mobilized to avoid climate disaster. GSIA have set out a systems-change approach to aid the financing of that change, with academics from the University of Tokyo, Columbia University, London School of Economics, and investment professionals from World Bank Group, PRI, Berkeley Law and others contributing to the report’s findings.
“Investor and policymakers’ incentives are misaligned,” said James Alexander, CEO of UKSIF and Chair of GSIA. “At COP 29, policymakers, investors and civil society negotiators can help address the key barriers to meaningful and actionable change. We need supportive policy action to align incentives and catalyse capital to unlock the opportunities that a climate transition presents.”
The report groups incentive barriers into five categories, which GSIA has called the PIVOT framework:
- Policy vacuum – Policies can act as barriers that prevent investment from flowing to the climate crisis. At the same time, there is a lack of positive policies that encourage climate-positive investments.
- Interest – Companies and investors may focus on quick wins for near-term financial return or sustainability, ignoring long-term goals (e.g. net-zero by 2050). This short-term thinking prevents investments in sustainable projects and innovations to meet climate targets.
- Valuation – Environmental and social factors are traditionally not accounted for in financial models causing money to flow into environmentally harmful industries as “hidden costs” aren’t considered. A short-term focus on financial reporting can further undermine long-term value creation.
- Ownership – Some institutions and investments are managed without active involvement. A hands-off approach, whether due to cultural or structural challenges, means redirecting capital is difficult, and met with resistance from the current system.
- Transition misalignment – Certain business models and industries naturally conflict with the goals of the energy transition, making it challenging to create and put into action long-term plans that include these sectors.
About Global Sustainable Investment Alliance (GSIA)
GSIA is a global collaboration of sustainable investment membership-based organisations, aiming to unlock the power of the worldwide financial services industry to drive leadership, achieve a substantial impact on key global challenges, and accelerate the transition to a sustainable future.
GSIA simultaneously works to enhance the synergies between members, participate in global initiatives, and provide advice and support to local and regional sustainable investment organisations as they establish and grow.
GSIA’s members are drawn from Europe, Asia-Pacific and North America. Collectively GSIA’s members represent the mainstream of global finance and investment, managing tens of trillions of dollars in assets. GSIA members include Eurosif (European Sustainable Investment Forum), Japan SIF (Japan Sustainable Investment Forum), RIAA (Responsible Investment Association Australasia), RIA Canada (Responsible Investment Association Canada), UKSIF (UK Sustainable Investment and Finance Association), US SIF (The US Sustainable Investment Forum).
About UKSIF
The UK Sustainable Investment and Finance Association (UKSIF) is the member organisation for sustainable investment in the UK, with over 320 members collectively managing £19tn in global assets. Members include investment managers, pension funds, banks, financial advisers, research providers, NGOs, among others.