Post-summit, ESG Investor collates the thoughts of asset managers, NGOs, and other sustainable finance experts. Did COP26 deliver on expectations?
The dust is beginning to settle following a critical two weeks in Glasgow, with investors taking stock of the plethora of new commitments and initiatives launched to enable a global transition to a low-carbon future.
Before the summit, ESG Investor spoke to a range of asset managers and NGOs on their predictions and expectations for actions required of governments and financial institutions to support the goals of the Paris Agreement.
In the immediate aftermath, respondents welcomed the progress made, but are united in their belief that governments, financial institutions and regulatory bodies could have gone further and been far more ambitious.
“COP26, for all its shortcomings, contributed some important momentum to the tortuous process of global climate negotiations,” said Emma Whiteacre, Senior ESG Analyst at BlueBay Asset Management. “It met our limited expectations while dashing our hopes.”
There is still a lot of work to be done ahead of COP27 in Egypt in 2022, experts said, with time running out to reduce the impacts of the climate crisis on portfolios, people and planet.
“Whilst there were some encouraging announcements at COP26 – from methane, to deforestation, to private finance – it’s clear that we are still not doing anywhere near enough to avert catastrophic climate change and destruction of the natural world,” said Huw Davies, Senior Finance Adviser for the Make My Money Matter (MMMM) campaign.
Slow pace criticised
COP26 served as an opportunity for governments from all over the world to map out a global strategy for fighting against climate change. Promises were made, but premiers from two of the world’s biggest carbon emitters – Russia and China – did not show, while developing countries were aggrieved about the lack of progress on promised climate finance.
Kelly Perry, Head of ESG Client Solutions, Edison Group:
“Governments developing mandatory reporting is a good start, but it’s only a start and will not drive the mobilisation of finance. There should be implications including government fines/penalties and a reallocation of that capital towards developing nations for companies not delivering on Paris Agreement.”
Nazmeera Moola, Chief Sustainability Officer, Ninety One:
“Most emerging markets were brought into the COP tent as the vast majority have now made decarbonisation commitments. There was also an acknowledgement from developed markets that more needs to be done on providing funding to emerging markets to decarbonise.
“This is not nearly enough. But the deal with South Africa where the governments of the EU, US and UK promised US$8.5 billion in concessional funding for new projects to facilitate decarbonisation was a good positive step. Article 6 progress to make carbon credits tradeable is really important to supporting emerging markets’ transition.”
Whiteacre, BlueBay AM:
“Much depends on rich countries following through on their promises on finance, trade and technology transfer to poorer countries. They have failed to deliver on one key pledge so far to provide US$100 billion in climate finance every year – that was pushed back to 2023. They really have to step up.
“Key announcements included China and India’s net zero ambitions, for 2060 and 2070 respectively – good but not enough. India’s in particular was more than had been expected, but still very much not enough for what needs to be achieved.
“The absence of Russian President Vladimir Putin and China’s President Xi Jinping from the leaders’ summit on the first weekend was a real disappointment at the start of proceedings. And China was largely missing in action in general, until an eleventh-hour joint declaration by the US and China that they would set aside their considerable differences to work together on climate, which of course is absolutely pivotal given the centrality of these two.”
Vicki Bakhshi, Climate Strategist, Responsible Investment Team, BMO Global Asset Management:
“The UN Climate Change Conference was never going to close the whole global warming gap – as we knew in advance what the country commitments would likely be. But the universal consensus on the goal is clear, and the agreement to revisit the target at COP27 is crucial.
“The COP meeting proved a catalyst for action outside of the formal negotiations. Smaller coalitions of governments, frustrated at the pace of change, made important agreements on areas such as methane and transportation.”
Big promises, little action
The cash tap was turned on for Finance Day at COP26, with trillions of dollars committed to fighting the effects of climate change. Banks, insurers, asset managers and pension funds pledged capital while ramping up measures to transition their investment portfolios to net zero greenhouse gas (GHG) emissions. These were seen as potentially significant, if not necessarily sufficient.
Perry, Edison Group:
“What we have learnt from the outcomes of COP26 is governments alone cannot achieve the required 1.5°C goal to avoid climate catastrophe and the private markets need to step up to the climate change challenge and be held accountable.”
Moola, Ninety One:
“A positive is the presence of public and private finance at COP for the first time in any size. Janet Yellen remarked that this was the first COP that a US Treasury Secretary had attended. This was also the first COP that the CEOs of most of the major global banks attended. Unfortunately, we saw little progress on evolving the role of multilateral development banks (MDBs) – though there was a commitment to continue discussion in this area.”
“Where our climate goes is dependent on finance, and without sustainable global finance – including co-ordinated action from the private sector, central banks, governments, and regulators, underpinned by an informed and engaged citizenry – there will be no sustainable planet.
“Voluntary commitments from banks and asset owners are welcome, but they are worthless unless they include strong, front-loaded action this decade; with implementation beginning immediately.”
Seetal Modi, Funds, Finance and Regulation Partner, Fladgate:
“The Glasgow Financial Alliance for Net Zero (GFANZ) released further guidance for members of the Net Zero Banking Alliance and other financial subsectors; and all member states of the UN Framework Convention on Climate Change agreed to the Glasgow Climate Pact. While it is encouraging to see many of the world’s leading financial companies committing to sustainable business, there are inherent roadblocks and many of the agreements lack teeth.
“Many larger financial institutions have not signed up to these initiatives, and for those that have, adherence in not mandatory.
“For banks, COP26 is also not the first time they have been encouraged to decarbonise their books and so far, the results have been sluggish. In 2019, the UN General Assembly launched its principles of responsible banking with much fanfare. There is also a lack of clear distinction between a bank’s investment and lending activities, thus conflating two activities which are at different stages of the trajectory.”
Jack Balsdon, Senior Associate, Climate Change, Principles for Responsible Investment:
“Announcements from GFANZ and the associated net zero finance initiatives at COP26 demonstrated the significant traction gained so far across the investment industry and beyond. The commitments made are an important first step, providing the foundation for real action and progression towards set targets.
“What we do need to see from policymakers is more legislative support for private finance, to provide a strong legal and regulatory framework for further emissions reductions. Likewise, private finance needs to continue to rise to the challenge by increasing the scale and scope of their ambitions on reaching net zero.”
Are fossil fuels finished?
To reach net zero, the world needs to stop using fossil fuels soon and stop new exploration now. More countries agreed to keep coal in the ground, fewer committed to quit oil and gas, while consensus was reached on Article 6 rules for global carbon trading. But measures for tracking corporate carbon emissions and transition plans remain inconsistent.
Moola, Ninety One:
“The coal agreement marked the first time that coal had been explicitly mentioned in a COP statement. Though the wording remained sub-optimal, this is still a good step.”
Bakhshi, BMO GAM:
“The much fought-over text on fossil fuels in the Glasgow Climate Pact was significant.
“Concerns on net zero-washing abound – our 2022 engagement agenda will have a sharp focus on implementation, ensuring that these commitments are backed up by concrete actions to decarbonise.”
Whiteacre, BlueBay AM:
“An agreement was reached over Article 6 of the Paris Agreement on the rules for global carbon credit trading, after 6 years of discussion. This will now enable countries and companies to access a global market to offset emissions to meet their decarbonisation targets or attract investment for mitigation projects and avoided emissions. It removes the possibility of double counting of carbon offsets – so if one country buys credits from another to reduce its emissions, there will be a corresponding rise in the other’s emissions tally. This will have the effect of channeling finance into emissions reduction projects.
“In order for this to drive a resulting overall reduction in emissions, carbon prices will need to rise, and the supply of carbon credits will need to be constrained. Under the rules, purchasers of voluntary emissions credits will need to deposit 5% of credits into a climate adaptation fund for developing countries, and 2% of the credits will be cancelled to reduce supply.”
“There is also the issue of carrying out environmental-impacts assessments and measuring greenhouse emissions of projects. This is not something that most financial institutions are equipped to do without significantly increasing competency and thus negatively impacting their cost base. As such, we need to query how effectively it will be put into practice.”