Stockholm (NordSIP) – Two days ahead of the start of the United Nations Climate Change Conference (COP26), NordSIP reached out to asset managers and asset owners to hear about their hopes for the event.
The mobilisation of private capital, the expansion of net-zero pledges, the harmonisation of disclosure rules and the fulfilment of 2009’s pledge to support emerging market countries seem to be the four main priorities for investors. Having already reviewed their thoughts on the first two themes, we consider the last two of those expectations here.
Harmonising Disclosures
“First and foremost, I’m hoping that we are courageous and accountable. We need to enable an economic system that can deliver a 1.5 world. In order for that to be in place, we need a global agreement on how we price externalities and how we manage natural capital. This entails clear rules around international carbon markets. We need to put the financial markets at the forefront as the enabler and driver to deliver on this. I’m not expecting this from COP but it would be courageous and accountable,” says Robert Vicsai, Senior ESG Investment Specialist at SEB
“To meet the science-based pathway of limiting global temperature rise [governments] need to act in the shorter to medium term. Disclosure and governance on how countries will reach carbon neutrality, and to include the private sector to commit, are key. Aside from that, I would also like to see allocation of financial resources and technical help to developing countries and endangered areas, immediately and urgently. It would be great if the conference addressed the question of climate-related disclosure by companies, with further progress toward guidelines,” Schroders’ Eggerstedt adds.
“As long-term investors, we believe what is most required is clear, achievable, and binding regulation: it is for governments to set and enforce the parameters of the transition. A coherent and enforceable regulatory framework that provides companies with a roadmap by which to navigate is essential if they are to contribute effectively to the journey to a carbon-neutral world. The accumulated impact of innumerable adjustments to manufacturing processes, supply chain reforms, and shifts in corporate behaviour will play a powerful role in limiting the rise in global temperatures,” adds Alan Edington, Investment Manager, Responsible Investment at Walter Scott, a BNY Mellon company.
“Getting an agreement on rules to govern a functional international carbon market is one of the best ways to accelerate the change we need. We need to put a right price on carbon.
With nine years to halve the emissions, I also hope that we’ll see more concrete short–term action points, instead of government or companies tightening goals that they haven’t been able to reach previously,” says Hilde Nordbø, Head of Sustainability at Handelsbanken Norway.
“Another hope is that the COP26 will lead to a strong push for global harmonisation of mandatory climate disclosures. Currently, this is random and voluntary. This already has support within the G-7, and it has been boosted by the new EU Sustainable Finance Disclosure Regulation and EU Taxonomy which will standardize reporting across the 27-nation bloc,” adds Lucian Peppelenbos, Climate Strategist at Dutch asset manager Robeco.
International Cooperation
“Global warming has historically been caused mainly by developed markets, but the costs are mainly borne by emerging markets,” says Peppelenbos. “For this reason, countries agreed to [contributing] US$100 billion per year in funding [to emerging market countries] back in 2009. This pledge has not been fulfilled,” Peppelenbos explains, echoing recent remarks that Per Bolund, Sweden’s Minister for the Environment and Climate, made at the UN.
“Developing countries say that without this financial support they will be unable to cut emissions in line with the Paris Agreement. It is certainly true that developing countries do not have access to the necessary levels of capital that would allow them to carry out investment in decarbonisation. Developed countries are expected to pledge new climate finance at COP26 and agree on a concrete plan to deliver a minimum of $500 billion to developing nations between 2020 and 2024. But even that is unlikely to be enough. Meeting the Paris Agreement commitments of net zero by 2050 requires investments of around $5 trillion a year, or $150 trillion over 30 years, according to the IEA,” say Natalia Luna, senior thematic investment analyst, responsible investment, and Jess Williams, portfolio analyst, responsible investment at Columbia Threadneedle.
“The just transition mechanism is a key tool to ensure that the shift to a carbon neutral economy happens in a fair way. It should provide targeted support to help mobilise the most affected regions, to HELP alleviate the socio-economic impact of the transition. There needs to be an appreciation of the fact that those who have contributed the most to climate change, and those with comparatively great resources, should resolutely commit to helping others,” says Vishal Hindocha, Global Head of Sustainability Strategy, MFS Investment Management.
“The principle of a ‘just transition’ – ensuring the transition to a low carbon global economy does not unduly disadvantage weaker economies or parts of societies – has also gathered pace. As a global challenge, climate change requires coordinated action. Through that lens, the just transition is both a goal and a requirement: global agreement across policymakers representing every part of the global economy will not be possible unless all consider the plan fair. Failure to reach such an agreement has been the major headwind to faster action at past global conferences. As a result, we expect the need for global coordination and support to less developed economies to be a major component of negotiations in the run up to, and throughout, COP26,” adds Andy Howard, Global Head of Sustainable Investment at Schroders.
Limited Optimism…
“There is a difference between hope and realistic hope. Of course, my hope is that COP26 will not only reinstate the Paris goals, but also strengthen them: we know net-zero 2050 is definitely not enough. But that’s my hope. Realistically, we don’t have the plans on the table to get in line with a 1.5 degree scenario. In all honesty, there is no hope to stay within the 1.5 degrees,” warns Hans Stegeman, Chief Investment Strategist at Triodos Investment Management.
There’s almost no chance that the delegates of almost 200 countries gathering in Scotland will agree to bear the economic and political pain to achieve the kind of radical emissions cuts needed to hit that goal. The pain is in really taking (global) measures on carbon pricing, adjusting economies by restructuring industries but also on solidarity with poorer countries. A lot needs to be done. But COP26 will not be the solution,” Stegeman continues.
“The conference could prove a make-or-break moment for global climate diplomacy. Pressure has been intensifying and we could see a real step change in climate policy at this year’s meeting,” says Schroders’ Howard.
… But Hope Remains
“The COP26 is the last warning, the best that can come out of such warning is for people to understand and engage. Only when people rise united can we make a difference. I hope for no more political deals that look good on paper without an actual strategy to achieve these targets and essentially the 1.5 degree ambition,” adds Lars MacKey, Head of DCM Sustainable Bonds at Danske Bank.
“We see COP26 as a near-term catalyst for aspiration, action, and accountability from countries, companies, and investors alike. At COP26, I look forward to participating in rich dialogue with a range of stakeholders whose goal is to set out a tangible roadmap for action to keep 1.5°C of global warming within reach. These diverse viewpoints will help inform the continuous evolution of our approach to climate risk management and net-zero implementation in clients’ investment portfolios,” says Julie Delongchamp, Climate Transition Risk Analyst at Wellington Management.
“We hope that by convening global leaders across almost all countries, COP26 will deliver firm commitments and clear action items to catalyze the low carbon transition. Having started over a quarter-century ago, we hope this long-standing conference will continue to bring recognition of and solutions for combating climate change, as well as an understanding that no single country can fix it on its own,” concludes John “Chip” Montgomery, President, Rockefeller Asset Management International.
