Exclusive: White House insider John Morton on asset owners’ net zero role

Climate veteran John Morton was appointed the U.S. Treasury's first climate counsellor in 2021, advising Janet Yellen and Joe Biden on net zero and sustainability policies across the US government.

At the end of last year, Morton stepped down and returned to the private sector by re-joining his old employer, the advisory and investment firm Pollination Group.

In this 2-part interview series, Morton sits down with Net Zero Investor to discuss what is next for climate policies in the U.S. and beyond, and in particular the role investors, corporates and regulators play in the path to net zero. 

Today part II. The first instalment, in which Morton reflects on his time in government, can be found here. 

Yesterday, we talked about your time in government but you did so much more than your time in the Biden administration. In various roles you worked with politicians, corporates, stock exchanges and market regulators. Overall, do you feel there is a genuine will to introduce proper net zero regulation?

Scanning the global landscape, the answer is a definitive yes and direction of policy and regulatory travel is clear. Some jurisdictions are moving faster than others but pretending that the movement isn’t happening won’t make it go away. Having interacted with counterparts around the globe and witnessed the passage of the IRA here in the US during my time Treasury, I’m highly confident in this assessment.

Following the Paris Agreement, the global climate community carried out essential work to better understand the risks of climate change – such as the seminal IPCC 1.5oC report and the work of the NGFS and TCFD – and to set, and price, country climate commitments.

At the same time, the structural shift required to tackle the climate crisis has always promised huge opportunity.

It is difficult for anyone to enact big changes based on risks and costs alone, but with leadership from the United States through the Biden administration the economic upside of climate action is now front and centre in the political and corporate climate discourse. Countries are now competing to lead in the new net-zero economy.

All the while, financial regulators in the United States and globally continue to move forward to identify and mitigate climate-related financial risks. Their social agency to regulate is bolstered both by strong policy signals and by actions that the financial sector has taken to organize itself through initiatives like the net zero alliances.

So what should be the next step for asset owners, managers and investors when it comes to sustainability standards and regulation?

The first step is for those who have not yet embraced this transition to understand and embrace that it is inevitable. Across the financial sector, many institutions have made net zero commitments, but there are also many organizations that still haven’t made commitments and some even that continue to actively resist the net zero transition.

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Interview with John Morton - Part I 

The longer they remain outside the tent, the more damage they are doing both to the planet and to long-term shareholder value. If the climate crisis is not itself enough motivation to act, then the clear trajectory of regulators and policymakers globally to address climate change should be.

And for corporates and investors?

For asset owners, managers, and investors looking progressively forward, they should recognize that there is no net zero without also contributing to nature positive outcomes. They should take strong and decisive action on addressing their nature-related impacts, dependencies, risks and opportunities. Because nature impacts are location specific and there is no universal metric like CO2e for biodiversity- the approaches, measurement and actions focused on nature will vary from those associated with climate. However, they are interconnected, twin crises and should be addressed together. It has taken time for policy makers, investors, and firms to understand the need to halt and reverse the loss of biodiversity and natural capital, and that means that the challenge is as urgent as climate change for meeting global 2030 goals.

We’ve all seen nature and biodiversity rising rapidly up the list of priorities for regulators and standard setters. Asset owners, managers, and investors should move as soon as possible toward placing equal priority on contributing to nature positive outcomes and achieving net zero . To start, they can right now integrate nature in climate transition planning, start assessing nature risks and opportunities across the portfolio, and heighten engagement with portfolio companies on nature related issues.

Some investors and managers increasingly demand more detailed ESG data, so they can understand and monitor sustainability efforts better. Do you recognise that trend?

Despite some rather partisan political rhetoric these days, ESG considerations have been repeatedly and definitively proven to be material to firms’ long-term performance. So yes, we should continue to pursue better access, consistency, and granularity of ESG data, which will help investors and managers make better informed decisions regarding investment allocation and prioritization.

But the anti-ESG movement is growing, particularly in the United States.

Political pushback against “ESG” and decisions to intervene in fiduciaries’ ability to act in the best interests of their clients are misguided and damaging. And there is a certain irony in politicians claiming to be champions of the free market choosing to actively intervene in the free market decisions of financial services providers and their clients. Such interventions fail to recognize that considering ESG factors is not a trade-off of values and profit, but a path to seeking greater return and protecting against downside risk. This is particularly true for climate and nature, where investors and managers need to translate complex science into economic and financial impacts. 

Fortunately, there is excellent work ongoing by regulators, multilateral organizations, civil society, and the private sector to improve access to quality data. I’m particularly encouraged by the march toward consistent and mandatory climate disclosure, an evolving framework on nature risk disclosures, expanding national natural capital accounts, and the ever-expanding set of tools and datasets that link physical and scientific data to economic and financial performance. As the data ecosystem develops, it will continue to bolster sound investment decisions, and make it harder and harder for politicized denial of the need to consider these factors in that process.

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