Originally written by Rory Palmer on What Investment
Reflecting on the last few days at COP26 in Scotland, I decided to finish this column in a café in Edinburgh. Not because I wanted some JK Rowling-esque inspiration, but because of Airbnb’s helpful 10am checkout.
Despite that, and despite the general reaction from the media, I’ve been impressed by what I’ve heard up here and have come away far more optimistic than I was.
I do share Lawrence’s view that the coverage of COP26 has been exhaustive and we’re all suffering from a bit of COP-fatigue.
However, spare a thought for ESG Clarity’s Natasha Turner who has been up in Scotland for the whole show – great effort!
As a relative newcomer, I’m conscious I might be sounding quite green (wahey) but I think it’s with good reason.
Both Natasha and I were present at events on Sunday and Monday, hosted by Janus Henderson and Schroders. I’m under no illusions about the scale of the problem – but I am confident that the asset management industry is re-positioning in a way it hasn’t before.
The tone has changed, the stakes have changed, there is no room for error.
Governments have committed, at least in words, to serious reductions and targets, but without China and Russia present, the whole exercise feels incomplete.
That said, as I started writing this the US and China have agreed to work together to reduce their emissions in line with the Paris Agreement.
Some have been cynical of the pledges, and research group Climate Action Tracker rated both the policies and actions as “insufficient” to be consistent with keeping global temperature rises to 1.5C.
Action, rather then agreements are needed, but a US/China deal on anything in 2021 should be cause for optimism, no?
The best phrase I’ve heard over the last few days has been that reducing emissions and switching to renewable energy in Europe is akin to shuffling deck chairs on the Titanic, it’s pretty but won’t make a difference.
Rates in Asia continue to rise and if we are serious and want to make an impact, new money has to spent in the high-emitting emerging markets to develop sustainable infrastructure.
Continuing to invest in Europe without spending more in fast-growing markets is also a deckchair shuffling exercise.
Currently, despite emerging economies accounting for half of global emissions, only 20% of global funding goes there. There’s the mismatch.
India don’t have the luxury of being pious about climate change, they need cheap renewable electricity to accommodate the huge population and with 80% of its energy coming from oil & gas there needs to be some serious funding in order to transition.
Similarly, hinging hopes on a silver bullet fuel or technology to end this crisis won’t work, the solutions already exist.
What was refreshing to hear was the differences of opinion, there was no uniform voice about how we get to the end goal – lots of perspectives which will combine to form a strategy.
That in itself is good, it would be strange if COP26 yielded a definitive agreement from all members, each country has to tackle its own problems in order to achieve the collective good.
Capital markets don’t exist in a vacuum and while private capital will be key in shaping how the crisis plays out, it needs coordinated government policy to work alongside it.
Interestingly, a new investment trust is planning to float in early December, ThomasLloyd Energy Trust, which has received seed funding of up to £25 million from the UK government, a first for investment trusts.
ThomasLloyd has matched this amount, marking a partnership between both government and private capital.
It’s a big step in the right direction and needs to happen more often in order to hit the targets and fulfil the promises made over the last two weeks.
I’m heading back to London this evening and will do so confident in what has taken place here. I wouldn’t go as far to say the event was a turning point, I think that happened in the months preceding the summit.
2021 changed the tone; floods, wildfires, and extreme heat occurred all over the world – it’s been a record breaking 12 months for all the wrong reasons.
Our actions don’t exist in a vacuum and things may get worse before they get better.
For now, I remain hopefully optimistic.
See more – Sustainable investing, explained – by Mark Hoskin
