Stockholm (NordSIP) – Since the Summer, investors have been preparing for the 26th United Nations Climate Change Conference (COP26) due to be held in Glasgow next week. To understand what is at stake and be able to benchmark the outcome of the conference against investor expectation, NordSIP reached out to Nordic and global asset managers and asset owners to hear about their hopes and fears for the conference next week.
There are at least four topics that seem to come up as investor priorities: 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. Here we consider the first two of those expectations, before reviewing the remaining two themes.
Mobilising Private Capital
”My main hope for COP26 is that the overarching focus on climate action will translate into concrete actions where we as investors can contribute. Mobilizing finance is a goal at COP26, which P+ are already contributing to, and we will increase our climate finance the coming years. Climate finance is central to creating real world impact,” says Søren Kolbye Sørensen, CEO of Danish Pension P+.
”Our hope is, that COP26 can contribute to accelerating the financial sector’s contribution to the green transition. We must ensure solid framework conditions that apply across country lines. It’s crucial to enable institutional investors to allocate more resources towards sustainable investments and ensure a timely transition,” Dewi Dylander, Head of ESG at PKA adds.
Discussing the perspective of fixed income markets, Ulf Erlandsson, CEO of the Anthropocene Fixed Income Institute (AFII), is hoping for policy makers to open the way for capital to go where it is most needed. “There are a lot of rules and institutional limitations today that keep large amounts of capital stuck in low-yielding AAA/AA assets in fixed income. A really good outcome from COP26 would be a clear and very short path to unchain that capital to move into more climate productive and higher-yielding uses,” Erlandsson says.
“This is something that requires both regulatory changes as well as a more assertive stance on risk from investors. For example, South Africa is asking for USD30bn to exit coal: we would hope to see private capital and concessionary finance institutions teaming up and actually providing it, and doing so quickly. It would be a crucial template for other parts of the world working through the cost/benefit analysis of a forceful climate transition. As an aside, we would also hope for a Scandinavian moratorium on Arctic oil drilling,” explains Erlandsson.
Craig Mackenzie, Head of Strategic Asset Allocation at abrdn, also emphasises the link between climate change policy and the deployment of private capital. “Government action really does matter. Without aggressive policies, we will end up with well over 2C of climate change. Ultimately, what delivers the change is new technologies (solar, wind, EVs etc) and we have been making spectacular progress with the technologies. But the private sector has only really been able to get the investment necessary to develop these technologies because policymakers have offered early-stage support via subsidies and ‘direction of travel’ commitments, which have given investors the confidence to deploy capital,” Mackenzie says.
Net-zero goals and commitments aligned with the Paris Agreement lay at the heart of national climate change policies and are one of the main focuses on investors ahead of COP26. “Realistically, the best we can expect from COP26 is a modest tightening of voluntary Nationally Determined Contribution (NDC) goals, particularly from the big emitters,” Mackenzie adds. “The main problem today is that a lot of countries have set Net Zero targets, but most of them have not set up sufficiently stringent policies to move towards them quickly enough. This is particularly true in China and the US given that they account for nearly 40% of global emissions between them,” Mackenzie continues.
Kamil Zabielski, Head of Sustainable Investments, Storebrand Asset Management, agrees with the need for national governments to step up their efforts. “It’s critical that these high-level meetings realign the real economy with social and climate needs, so we’ve thrown our weight into joint efforts towards building the critical mass to make this happen. We encourage governments to commit to policies consistent with limiting global warming to the 1.5°C target – and to bring biodiversity conservation higher up on the agenda – it’s becoming increasingly clear how crucial this is to the climate change equation. Time is running out: we need political leaders to step forward and deliver bold commitments now,” Zabielski explains.
“I would like much more actionable commitments by all governments towards carbon neutrality. It is absolutely welcome that many countries have set themselves targets by reaching net zero,” says Saida Eggerstedt, Head of Sustainable Credit, European and Sustainable Credit and a specialist in carbon neutral investing, at Schroders.
“The policies of individual governments have fallen far short of the global commitments made at Paris and they continue to do so. This conference provides a staging post. National leaders are expected to return to the forum with tougher commitments, closing the gap between that shared ambition and their individual actions,” says Andy Howard, Global Head of Sustainable Investment at Schroders.
“Countries need to accelerate their decarbonisation under what’s known as the ‘ratchet mechanism’ – making progressively bigger cuts in emissions to reach net-zero,” says Lucian Peppelenbos, Climate Strategist at Dutch asset manager Robeco. “The policy ambition gap is factor one hundred,” Peppelenbos adds. “Currently, the 2030 pledges only lead to a 0.5% emission reduction, whereas a 50% reduction is needed to reach the 1.5 degree limit. So, it’s a good COP if pledges are made to at least get to a 25% emission cut by 2030, as that puts the world onto a 2-degree trajectory.”
“More certainty” is how Eric Pedersen, Head of Responsible Investments at Nordea Asset Management summarises his hopes. “We need world leaders to come to an agreement and lay out a hard timeframe for the introduction of a material carbon tax, of the mandatory phaseout of coal-fired power generation, and all the other policies needed to ensure that we do not substantially overshoot Paris targets. If they can lock in these policy actions, that will take out a lot of the uncertainty remaining in the discussion of climate risk, and it will make it easier for us as fiduciary managers to address the issue on a global issue. As it is, one of the challenges we have as asset managers is that we cannot move faster than our clients are with us – and making clear the pathway to net zero from the regulatory side will provide much better visibility for asset owners and asset managers alike,” Pedersen says.
“The latest IPCC report clearly sets out the implications of inaction – we have no more time to waste. COP26 is really a key opportunity since climate change is a global challenge, and requires international collaboration. So we hope that COP26 will achieve stronger international collaboration and lead to meaningful actions and concrete roadmaps how to reach net zero. We also hope for firm commitments and mobilization of capital for a ‘just transition’ that takes into account developing countries, which are hit particularly hard by the consequences of climate change,” says Philipp Mueller, CEO at BlueOrchard.
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