Three months until COP26: Asset managers set out expectations for global climate conference
This Saturday, 31 July, marks three months to go until the much-anticipated UN climate change conference, COP26, which will see nations come together in Glasgow to discuss a collaborative approach to tackling global climate change.
Expectations are high, with United Nations Secretary-General António Guterres calling 2021 a “make-or-break year” in the transition to a more sustainable world.
Asset managers and investment consultants are expecting COP26 to bring significant change.
“In many ways, it is not a question of whether or not expectations will be met – quite simply we cannot afford for them not to be,” says Adam Gillett, head of sustainable investment at Willis Towers Watson.
The investment industry has signalled its intention to play a part in the global climate transition, with almost half of all assets under management tied to the goal of reaching net zero by 2050.
“Given the ambition and commitment signalled by the investment community through a wave of recent net zero pledges (including WTW’s own), it is critical that this ambition and commitment is matched or exceeded at COP26,” says Gillett.
Gillett says the investment industry now needs greater clarity from governments on the next steps. “Real clarity and detail that supports high-level policy positions will be crucial to enabling and supporting an orderly and just transition to net zero, and will give the investment industry greater confidence and ability to play its key role in that transition as effectively as possible.”
Joshua Kendall, head of responsible investment research and stewardship at Insight Investment, says that the focus will be on how governments and investors can work together in addressing climate change.
“In order to contribute as effectively as possible, the investment industry requires three things: a regulatory environment that enables the transition, reliable data on climate risk to inform investment decisions and engagement, and collaboration that leads to resolute commitments aligned with the Paris Agreement,” says Kendall.
Maia Becker, director of corporate governance and responsible investment at RBC GAM, is expecting to see “increasing government consensus on the policy and regulatory actions needed to address climate mitigation and adaptation”.
However, she notes: “While there is likely to be broad agreement on the overall imperative for action and its underlying components, consensus on more concrete items will be challenging to achieve”.
Becker says that the announcement of updated nationally determined contributions (NDCs) by signatories to the Paris Agreement will “provide additional insight on the level of government ambition and action on climate change” and identify potential climate risks and opportunities.
RBC GAM will then look to incorporate these NDCs, which outline a country’s plans to reduce their carbon emissions, into its climate scenario analysis.
Jihan Diolosa, head of responsible investing at Russell Investments, notes that this will be the first conference to review and strengthen the Paris Agreement.
“This COP needs to be about tangible actions to meet the various ambitions and targets that have been made to limit global warming to 1.5 degrees,” says Diolosa.
Russell Investments hopes to see clear plans by governments and policy makers on meeting the four COP goals of mitigation, adaption, finance and collaboration.
“All countries should disclose not just their Nationally Determined Contributions (NDC) but clear targets and action plans for achieving them. We would also like to see details of how developed countries will support developing countries in meeting their climate targets and how finance will be mobilised to fund technology and innovation,” says Diolosa.
Besides the NDCs, the major focus of the conference will be on the mobilisation of private finance, according to Matthias Fawer, ESG and impact analyst at Vontobel Asset Management.
“In the future it will be key that every financial decision takes climate issues into account,” says Fawer. “Therefore, our focus and our hope lie on the private finance hub, led by Mark Carney, building a system that mobilises private finance to support the re-engineering of the economy for net zero.”
Stricter targets such as the EU ‘Fit for 55’ legislation, which aims to ensure a 55 per cent cut in greenhouse gas emissions by 2030 through carbon trading schemes, and other green regulations from US and China, will also “certainly accelerate decarbonisation investments”.
“However, we see several tensions that may hamper a promising global agreement,” says Fawer.
My-Linh Ngo, head of ESG investment and portfolio manager at BlueBay Asset Management, says that while there are “some encouraging signs of progress and momentum” in tackling climate change, change is not currently being delivered “at the speed or scale needed globally”.
“Whilst we want to be hopeful and optimistic, and note the growing momentum, we recognise the overwhelming challenges to finding the scale and speed of the transformational policies we need,” says Ngo, who believes that countries “need to increase their carbon ambitions”, as per the ratchet mechanism in the Paris Agreement, setting more aggressive targets for 2030, and ultimately by 2050.
Ngo also notes the “critical need” to close the significant funding gap to emerging markets which are the most vulnerable to the impact of climate changes.
“A failure to do so risks a disruptive and disorderly transition, which is in no one’s interest, least of all the investment community as it leaves us exposed to significant risks,” says Ngo. Ngo continues: “We are unlikely to see the government leadership we need, but we hope we are proven wrong, because the window to act is closing. The stakes are too high to hope otherwise.”