Colin McLean: Can COP26 put Scotland on path to meaningful change?

Embedding sustainability is not just about carbon, but putting the nation on a path to a different type of economy. Is there the vision to use COP26 as a launchpad to change; not just driven by climate but a longer term and broader view of output, growth and wealth?

International tables suggest the UK is amongst the better performing economies in terms of the green transition. But real leadership is to be found in some of the smaller nations. Denmark, for example, has been singled out as best amongst 180 countries in the Environmental Performance Index. This reflects ambitions for climate, environment and biodiversity and it has already delivered results in air quality, safe drinking water and waste management. This progress has not stopped Denmark from remaining prosperous and scoring well on happiness.

Scotland has high aspirations, too. But there is clearly some magic to delivering the Denmark result that we must learn from other smaller European nations. Slogans may be part of the solution, but there is a risk of unintended consequences by merely focusing on, say, ‘net zero’. People need to understand how policies join-up on the road to sustainability, with well-argued explanations supporting the soundbites. Big changes in behaviour are needed, something that will only happen if there is shared belief in the process and goals.

And policy needs to be informed by what works. Pricing and taxes can allow harm to persist. For example, creating a value for waste can perpetuate waste alongside growth in an economy. It may even be seen as morally justified if it is being turned into alternative energy. Deeper thought is needed about the sustainability of any activity, whether or not it can market or export its pollution. Similar problems may arise with pricing carbon. This can perpetuate harmful activities in the belief that the polluters have fully paid for the consequences.

Unhelpfully, misinformation abounds – for example, some individual countries promoting themselves as green leaders but possibly just distracting from what remains to be done. The UK has benefited greatly from the transition from coal to gas, which was a decision taken years ago by a previous generation of politicians for reasons not solely related to climate.

Scotland and the UK as a whole may look better than most, while countries such as China and India appear to lag. But their position is distorted by their manufacture of cheap clothes and other goods for British consumers. The West needs to own up to the impact of its consumption, however remote. The debate must be widened – there is little sign that UK consumers are ready to be weaned off fast fashion, for example.

Scotland has an abundance of natural energy, but should not overlook the challenges in other parts of its economy. Can it move to a model for tourism that has less impact on Scotland’s natural resources, its communities and indeed the world as whole? And can food – an area of excellence for Scotland – be brought into a circular economy, with more direct domestic consumption of our own produce? At the edge of Europe, Scotland may suffer more from the move away from oil, with the expensive travel that will bring. But other peripheral countries are facing up to this challenge already.

Much hope is placed on the ability of stock market investors to influence corporate behaviour. Investment managers are seen as having a key role via their meetings with companies and voting. UK regulatory policy is now challenging investing institutions to be bolder in using their ownership in companies to discourage bad practice and promote sustainable growth. Already, there is a framework of regulation in the UK and EU that encourages good stewardship and voting. But the problem is that many of these investment funds and large pools of assets are not owned by those who manage the investments, but are looked after in trust for the savers and workers who they really belong to.

And most companies are a mix of good and bad; in terms of their impact on society, how they treat staff and customers, how fairly they operate and on executive pay. There are many competing moral principles to juggle and fund managers may be a little better equipped than most to make the right compromises. But it does take active engagement with company managements and boards, as well as voting.

There is little evidence that simply avoiding owning shares in a particularly troublesome company actually has much short or medium term impact on it. And as more companies are taken off the stock market into private ownership, the influence of the City becomes much reduced. Society should expect good stewardship of assets, encouraging good corporate behaviour, but it is unlikely to create a sustainable economy any time soon.

Recent research concluded that Scotland is in the strongest position of UK nations to drive the growth of the green economy in the UK. This comes from Scotland’s existing base of green industry, skills and training, innovation and renewable energy. Scotland is estimated to have 21,000 existing green economy jobs, ranging from onshore and offshore wind to hydroelectric power. In relation to the size of its labour market, this represents the highest proportion of green jobs in the UK.

Scotland also punches above its weight in responsible investing with an estimated 11% share of the UK responsible investing market. But progress is limited by lack of data on the sector in Scotland, and more broadly by a need for more definition. The right metrics would shed more light on Scotland’s progress in transition. It could help Scotland attract inward investment to stimulate the green economy and showcase local expertise in responsible investing.

Scotland has heritage in finance and economics, rooted in the visionaries of the Scottish Enlightenment. Moral thinkers such as Adam Smith and Henry Duncan set the intellectual underpinning for the field of responsible finance. Today, a number of initiatives and hubs are continuing to develop thought leadership in ethical finance. Scotland is in the vanguard of countries thinking about growth beyond traditional GDP measures.

Citizens have the right to know what the target economic model looks like and be given a roadmap that all can believe in. It needs to be based on honest metrics; green-washing would foster cynicism and provide a ready excuse for inaction and delay.

Viewing the green challenge as only about carbon risks initiatives that fail to impact collectively. The legacy of COP26 could be a new path for Scotland towards a sustainable economy.

Colin McLean is managing director of SVM Asset Management