Climate Debate and Carbon Pricing (State Street)

By Esther Baroudy, Senior Portfolio Manager, Fundamental G&C Active Equities; John Flynn, Senior Portfolio Manager, Fundamental G&C Active Equities; Chin Wu, Associate Analyst; and Peter Torok, Associate Analyst

COP26, scheduled to be held from 1 to 12 November 2021, is expected to set the direction on whether ‘hard’ metrics, such as carbon pricing, will dominate environmental risk measures that are adopted in portfolios over the next decade. As the 26th United Nations Climate Change Conference of the Parties (COP26) draws nearer, we expect financial markets to look for indications on how carbon might be priced as well as assess the impact of carbon pricing on corporates and other entities. Important environmental-related events that may affect market sentiment:

  • On 10 March, some of the requirements toward the EU Sustainability-Related Financial disclosures Regulation (SFDR) came due and the scope of the SFDR in future is potentially vast.
  • COP26 is expected to set the direction on tackling emissions control for the next decade. A US-hosted Climate Summit on 22 April followed by a G7 Summit on 11–13 June may give markets signals regarding what to expect at COP26 (Figure 1).
  • Potential environmental-related risks coming from US President Joe Biden’s Executive Orders.

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