The 26th UN Climate Change Conference of the Parties – known for short as COP26 – brings together multiple nations with multiple agendas to try and forge agreement on the planet’s most pressing issues. That in itself is an ambitious and complex task – however, the far greater difficulty for global governments and the people they serve will lie beyond the conference as policymakers return to their respective countries and look to honour any commitments they have made.
Inevitable drop-outs notwithstanding, approaching 200 world leaders were due in Glasgow at the end of October – five years on from the symbolic Paris Agreement, which demonstrated to the world that consensus on climate issues is possible. The agreement requires countries to revisit their commitments to reduce emissions and, ideally, increase those ambitions, every five years. This is their main goal in Glasgow.
The intervening period has, however, exposed some of the limitations of such agreements – arguably the most notable being the departure – and subsequent re-entry under President Biden – of the US. It is clear the agreements require goodwill on the part of participants in tandem with a willingness to honour commitments made by their political predecessors.
See also: The funds hitting the right notes on climate change ahead of COP 26
UK among many countries that have not hit their 2015 targets
Equally, many countries have not hit the targets laid out in the 2015 accord – including the UK. “We are currently not on track to meet the main goal of the Paris Agreement in limiting global temperatures from rising below 2°C and ideally 1.5°C,” says MainStreet Partners research director Neill Blanks. “Countries at the very least are expected to update their emissions-reduction targets as part of their ‘Nationally Determined Contributions’. This must be one of the overarching aims of COP26.
“The UK already has one of the most ambitious targets – to reduce emissions by 78% compared with 1990 levels by 2035 and to be net zero by 2050. Approximately 30% of the global economy, however, still does not have a commitment to reaching net-zero emissions. This represents the greatest obstacle arguably – to achieve both global collaboration and co-ordination and to obtain firm commitments from some of the worst global polluters. That must be achieved for COP26 to be truly deemed a success.”
For his part, EFG Asset Management head of ESG and governance Stefano Montobbio references the Gattopardo Paradox of “if we want everything to stay as it is, everything has to change”. Many policymakers are still struggling with implementation, he points out, and while it is easy to make commitments, it is a good deal more difficult to turn them into policy and ‘sell’ them to the electorates back home.
Too often countries want to solve problems – just so long as it is without sacrifice – suggests Montobbio, adding: “This attitude is still too pervasive and data is often used to point out the faults of others while forgetting the harsh truth of cumulative or per-capita emissions.
“Data can give different information depending on how it is looked at but investors and consumers must stop thinking climate change can be solved without some sacrifice. Technology alone cannot solve everything. People must realise consumerism cannot continue undisturbed as it is generally at odds with sustainability.”
See also: UK budget underwhelms on green transition ahead of COP26
Some difficult conversations aren’t even on the COP26 agenda
Among the most difficult of ‘difficult conversations’ to be had concerns population growth. Sparrows Capital investment manager Mark Northway points out the global population has increased fourfold over the course of the 20th and early 21st centuries “driven by our economic paradigm and enabled by industrialisation, by wholesale food production, increased longevity and improved medical care”.
“The global governmental response is focused on reducing the ecological footprint of 7.9 billion people – while watching that number increase by around 250,000 per day,” he continues. Yes, we need to dramatically reduce the harm we are doing as a global population and we need to do it right now – but, no matter how efficient we become, there will always be a natural cap to the number of people the planet can sustain. That discussion is sensitive, politically fraught and not even on the agenda.”
If this sounds gloomy and difficult, it is clear many still believe COP26 and the agreements it puts in place are important. Montobbio expects COP26 will probably be an intermediate step in the fight against climate change, explaining: “It will not be the definitive step, but more a necessary one that can hopefully create the more homogeneous cultural background needed to lay the groundwork for bolder action in the future.”
COP26 has four key goals, the first being to secure global net zero by 2050 and keep 1.5 degrees within reach. To deliver on these targets, countries will need to accelerate the phase-out of coal, curtail deforestation, speed up the switch to electric vehicles and encourage investment in renewables. The conference also aims to adapt to protect communities and natural habitats, to mobilise finance and to work together to deliver on these goals.
And, as Mike Appleby, investment manager on the Liontrust Sustainable Investment Team, points out: what is the alternative? “The Intergovernmental Panel on Climate Change’s latest report was very clear on the science behind the energy transition,” he continues. “We need to reduce emissions from human activity materially within the next decade – approximately halving them – in order to limit the global average temperature rise to a rate that does not seriously limit our future quality of life.”
See also: Chris Cummings on COP26: Expectations, aspirations and hope
The financial implications of climate inaction
The implications of not taking action are starting to become more evident – as climate change delivers wildfires, hurricanes and floods across the world: “Familiar anxieties about the financial implications of addressing all this fail to consider the fact that not taking action to halve emissions by 2030 will cost orders of magnitude more in limiting growth and development,” Appleby adds.
“We continue to believe materially reducing emissions will impact the whole economy, including our energy system and how we heat and cool buildings as well as driving transformations in transport, industrial processes, agriculture and land use.”
This time – importantly – policymakers have the financial sector on their side. In the five years since the Paris Agreement, sustainable finance has moved firmly into the mainstream. Most major asset management groups are now engaging with companies to bring about change, representing a huge tailwind for policymakers to achieve their ambitions next time round.
Equally, businesses increasingly recognise their future access to financing may depend on their ability to reduce carbon emissions and act in a more responsible way towards the planet. “Companies contributing to this shift should prosper while those on the wrong side of the energy transition – or simply not confronting its ramifications – are at risk of secular decline and underperformance over the next decade and beyond,” says Appleby.
“Some of this has already been happening, with the European utilities market being a good example. The losers over the last 20 years have been those companies with high carbon-generating assets while the winners have been investing in renewables and the grids supporting them.
“To stay on the right side of this trend, we have avoided areas such as fossil-fuel extraction and production and, more broadly, internal combustion engine car manufacturers, airlines and energy-intensive businesses not positioning themselves for a lower-carbon world.”
At the same time, society has developed a greater awareness of the urgency of climate change. “Recent years have awakened an ever more strident global social conscience,” says Sparrows Capital’s Northway. “The task now is to harness that conscience into action through the medium of self-interested politicians.”
COP26 will be judged not only on any agreements forged but also on whether these are then implemented effectively and make material progress on carbon emissions. This time, policymakers have the finance sector, the corporate sector and, increasingly, society as a whole on their side. That bodes well for greater progress.
