Collective Responsibility for Climate Action

LSEG’s Group Head of Sustainability Jane Goodland speaks to Hywel Ball, EY’s UK Chair and UK&I Managing Partner, to discuss the roadmap towards net zero and the collective responsibility that we all have to play in climate action.

The conversation focuses on how collaboration and innovation between the financial sector, regulators, policymakers, and advisors will accelerate the energy transition post COP26, and also considers some of the near-term obstacles around geopolitical risk and energy security.

The Net Zero Conversations series was filmed at the Net Zero Delivery Summit, hosted by the City of London Corporation in association with the COP 26 UK Presidency 2022 and the Glasgow Financial Alliance for Net Zero (GFANZ).

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Hywel, welcome, and thank you for joiningus on Net Zero Conversations.Now, you've been at EY for many years,I believe, so can you tellus a bit about your role there?Yeah. I have been there at EY for many years.It's coming up to 40 years.I am currently the UK Chair and Managing Partner at EYbut over the years I've done many roleand actually first got associated with climate backin the early 2000s when I was Head of Energy.So this has been a fascinating topic for me for a long time.That, I'm looking back to COP26 last year,What have you kind of observedor what are your reflections since then?Because we're kind of midway between the COPs right now.Yeah. I remember being at COP26 last year being incrediblyexcited by a historic daywhen three statements were made,the Chancellor making a statementabout requiring mandatory transition plans.Mark Carney talking about the GFANZ commitments, andthe ISSB making their statements aboutaccelerating standards and all of those, I felt, werecoming together to make a chance for real change.I'm a bit worried as oflate with the global conflict andthinking about what will that do.Will that slow things downor will it indeed accelerate it?And probably over the short term,it's going to put more tension into the systembut I'm very positive about over the medium term,that the change to energy pricesmeans we'll accelerate lookingfor new solutions of energy.And probably, as far as policymakers are concerned,we'll see that alignment between energy policy,energy security, climate security, and national securityand that I think I'moptimistic will help, again accelerate the transition.Okay, interesting. And you mentionedpolicymakers there as well as the energy sector.And so I'm interested to know who do you think hasthe biggest role to play inreally kind of transitioning tonet zero and getting there on time?Unfortunately, I think it's all of us,which I'm sure is, you know, and you're gettingconsistency because no one part can finish the jigsaw.I think all those pieces have got to come together,whether it's the finance,the regulators and policymakers,the companies, and the advisors like us.So everyone's got to worktogether to deliver this, this transition.We got to work collaboratively, innovatively,and probably actually in ways thatwe haven't done recently.I know being a member of the Big Four,this has actually made us workcollaboratively together when we'vebeen incredibly strong competitors.And this is the first time in my lifetime.of 40-odd years at EY that we have worked so welltogether on big issuesdefining society at the moment.Yeah, I think you're right.I mean, collaboration is absolutely the name of the game.With respect to EY's workon sustainability with clients,can you give us a flavor of the types of thingsthat you're helping clients to do and navigate?Let me start by sayingthat we've got to walk the talk as wellso we're focusing onour ambition to get to net-zero by 2025,probably a little bit easier for a professionalservices firm than a fossil fuelbut nevertheless we feel we need to do that.We then are looking, I think, at three levels.I think we have a role as a convener.We sit at that nexus between industry and government.And so we do have a role there to play.We've done work with young people,bringing them together with leaders of industry tocreate the Climate Business Forumwhich was well-received.We've worked in the North Sea to helpcreate the North Sea Transition Deal.So I think there's a, at the highest level,there's that role for us to play.We've obviously got a huge role with companieshelping them advise on their own transition,whether that's through M&A activityor helping them work throughtheir transition plan and understandingtheir own supply chains and the tax implications of that.And lastly, but not least,we have a role as auditors and assurance providersof making sure that we're able to deliver trust into,as Mark Carney described this morning,the new financial system that we willneed to deliver the sustainability revolution.And that can be in currently thinking abouthow climate risk is reflectedin today's financial statements,but also looking forward about howthe new disclosures and new reporting isgoing to be required to deliverthe information to allowthis new financial system to work.So you mentioned this kind of the new reporting area.Can you tell me why ISSB isan important development inthat context around global disclosure standards?Yeah, it is so importantthat we can have global consistent,aligned standards, because without that,you can't get the benchmark andyou can't understand progress,you can't compare one country to another or one company to another.So I think why I was soexcited about the ISSB wasI've been involved for many years on, on looking at itand we were sitting in a position where we hadthis alphabet soup ofdifferent groups trying to create the metrics.And what the ISSB is doingis to bring together the best of that thinking.And to date, they've evidenced that they'venot been reinventing the wheel,they've been building, for exampleon the TCFD. And then they've been doing it very quickly.They produced their standards, which are short, strong,relevant, in less than six months.And normally an accounting standardwill take seven to nine years.So six months for a draft standard is pretty good.What we now need to see though,is that the standards get adopted by IOSCOand then the countries adopt them and they aretalking about three years and I think that's too slow.So we need to try and putthe pressure on so that we can acceleratethe adoption of the ISSB standardsand deliver that change for companies.And at EY are you working with your clients nowto get them ready for those new reporting standards in advance?Absolutely. I think this isa huge priority ofvirtually all the boards that I attend. They'reall thinking about their own reporting.They're all thinking about the transition plan, They're allworried about how willclimate risk impact on their business model.And we're starting towork with our clients to understand what isthe disclosure that they need to doso that their investors,their stakeholders, can understand what their journey is,to understand actually what are quite technical definitions.So when a company says,"We are Paris aligned", what does that mean?And how do they evidence thatif they are going to make that statement,that those risks arereflected in the financial statementsin a way that investorsand other stakeholders can understand?And can I just ask in terms,in practical terms when we talkabout helping clients to integrate climate risk,what do we actually mean by that?What sort of activities isEY working with its clients on?Ultimately, a lot of what wedo as professional services ishelping clients understandthe long-term risks that they're facing.So it is really takingthat climate risk asbeing a long-term risk for the business model.And then breaking that down so thatthe clients can both understand the duration andactually the specificity ofthe financial impact ofthose risks and challenging clients then to say,"Well, are they actuallyadequately reflecting those risks?"both in the narrative of their reporting butalso in the numbers of doing it.So I think that's probably the most important rolethat we've got at the moment.I'd like to move on to this,this term greenwashing that we hear quite often.And I would like to get your thoughts around that.And in connection with that,the role potentially of greater assurance activityfrom firms such as yourselfon sustainability disclosures.Auditors... I mean, my firm EYbegan its life 200 years agowith Arthur McClelland in Glasgowand they started because it wasthe start of the Industrial Revolutionand it was neededbecause new sources of capital were coming in.Then if you go hundred years further on, modern daycompany reporting and accountingstarted to happen in the 20's.And actually that fueledthrough the limited liability company,a huge explosion of further capital,which has driven, I think,a massive amount of wealth over the last century.If you now think we're at a pivot pointwhere we're going to move,and Al Gore said this,that we are going into a position wherewe have this change to a sustainability revolution,which is the size of the Industrial Revolution,but also has withinat the speed of the digital revolution.And we're moving, as Mark Carney woulddescribe, to a new financial system.We know, as being around for 200 years, about howimportant it is in the old system to get the finance right,to make sure companies reportedtheir finance capital in a waythat was readily understandableand to have assurance on that,so investors have the confidence and the trust to do it.I think as we now move tothis new financial system where wehave different metrics which people don't understand,which vary a lot,different ways to control those,that information that's being reported,we have a new responsibility and new challenge toboth provide and help the standards of reporting,but also the level of assurance against that reporting.And if we don't get both of those right,I think we will quickly losetrust in this new financial system.You already got the phrase greenwashing.A lot of that can be applied to marketing, advertising.But actually, deep down,It's going to be how a company reportsits performance on deliveringto this new financial system.And if I may, can I ask if there was one thing that weneed to get right to make COP27 a success,in your view what would that be?My personal view was that COP26was a success because it wasthe first time that business andthe finance community showed up at such an event.I worry that withall the challenges in the world, global conflict,the inflation, potentially heading into recession,that business and finance community's mindswill get turned away from COP.So I think the one thing forthat is that business and finance needs toshow up as strongly and hasinput to COP27 as they did for COP26.Great. Thank you very much. Thank you.

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