COP26 – the investment implications

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Billed as a critical event for climate change action, the twenty-sixth Conference of the Parties (COP26) concluded to mixed reviews from experts. Although many felt the conference fell short of achieving the bold commitments required to limit global warming to 1.5°, others agree that if governments, and critically financiers and businesses, action key pledges and continue to make more ambitious commitments towards Cairo 2022 (COP27), the goal may still be achieved.

Below are key commitments from COP26 and their potential investment implications:

Glasgow Climate Pact: Phasing down coal – Renewable energy & innovative technologies

Signed by all 197 countries at the conference, the Glasgow Climate Pact marked the first time a UN climate agreement specifically referenced the reduction of coal and fossil fuel subsidies in the energy mix. Disappointingly, a last-minute intervention by India saw the pact’s wording softened from ‘phasing out’ to ‘phasing down’, prompting anger amongst some signatory nations. The pact calls for all parties to accelerate their development, deployment and dissemination of climate change innovation technologies and clean energy power generation¹.

Glasgow Financial Alliance for Net Zero (GFANZ) – Private sector onus & ESG capital flows

Crucial to COP26 were not just government pacts but also those made by businesses. More than 450 banks, asset managers, insurers and other firms, controlling assets of over US$130 trillion, formed an alliance committed to climate change action and net-zero targets. Along with the financial commitment, the alliance will undertake ambitious work to drive the commitment, engagement, investment, and, ultimately, the alignment required to transform the financial system and global economy to net zero².

New analysis, commissioned by the UN High Level Climate Action Champions, found private sector actors could provide 70% of the total financing needed to meet net zero goals³

Paris Agreement Article 6: Framework or global carbon markets – Carbon credit trading

Necessary discussions at COP26 meant consensus was finally found on political issues around Article 6 of the Paris Agreement, which set out to establish a policy foundation for international carbon emissions trading. Parties have now agreed on how to avoid double counting of emissions reductions, the use of Clean Development Mechanism (CDM) credit, and adaptation finance. This progress could pave the way for an international trading mechanism leading to a global price on carbon.

COP26 Global Forest Finance Pledge – Sustainable products

With an ambitious goal, 130 countries possessing 90% of the world’s forests pledged to collectively provide US$12billion to halt and reverse forest loss and degradation by 2030⁴. The pledge, amongst other items, outlines support for climate mitigation and adaption, the enabling of conservation, and restoration of forests. Part of the solution will see countries working closely with the private sector to support and strengthen sustainable agricultural supply chains.

COP26 Declaration on Accelerating the Transition to Zero Emission Cars and Vans – Green transportation

Several Governments, states and cities, and automotive companies declared their intent at the conference to guarantee all new cars and vans sold will be zero-emission by 2035 in leading markets and 2040 globally. This progress was however overshadowed by the countries and companies, including Russia and China, Volkswagen and Toyota, that failed to make the pledge.

Other pledges included:

• India’s Net-Zero Pledge by 2070
• U.S. China Agreement to boost cooperation
• Global Methane Pledge to reduce global methane emissions by at least 30% from 2020 levels by 2030

Following this year’s conference it is clear many governments, jurisdictions and businesses have the intent to make meaningful change. Whether or not we are able to contain global warming to 1.5° will now depend on their action.

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1. https://www.washingtonpost.com/climate-environment/interactive/2021/glasgow-climate-pact-full-text-cop26/
2. https://assets.bbhub.io/company/sites/63/2021/11/GFANZ-Progress-Report.pdf
3. https://www.gfanzero.com/netzerofinancing
4. https://ukcop26.org/the-global-forest-finance-pledge/