Commentary

ICYMI, It’s a Matter of Maintaining Momentum

‘Biodiversity COP’ delay confirmed, as firms advised to “understand their dependency on and impact on nature”.

As governments focused on the unfolding humanitarian crisis in Afghanistan, this week it was confirmed that the Conference of the Parties to the Convention on Biodiversity (COP15), due to be held in October in Kunming, China, would be delayed due to the pandemic.

This means face-to-face negotiations on the post-2020 global biodiversity framework will take place at a delayed summit from 25 April-8 May 2022. Inevitably, this slows recent momentum, such as the so-called 30×30 initiative.

Biodiversity has steady risen up the agenda for investors and the wider finance sector, with frameworks being developed to better measure impacts. New expectations issued this week by the world’s largest sovereign wealth fund for investee companies to “understand their dependency on and impact on nature” underlined its importance for asset owners.

The COP15 delay also piles pressure on global leaders to push forward on action against biodiversity loss in October’s G20 meeting and November’s COP26, already on notice to avoid past mistakes and potentially subject to quarantine.

Politicians have received contrasting inputs on the scale of climate action required, with the Tony Blair Institute for Global Change recommending decisive intervention in an only limited sphere, while more rapid, transformational shifts are envisaged in a leaked version of part three of the Intergovernmental Panel on Climate Change’s (IPCC) sixth climate assessment.

Many are still digesting part one of the IPCC report, released last Monday, considering its implications for the planet and their portfolios. But, against the backdrop of the warmest July ever and warnings of the price of future climate tipping points, the week also saw signs of innovation, progress and adaption.

A Bloomberg Intelligence report flagged the mixed progress toward decarbonisation in the metals and mining sectors, but also noted ambitious commitments among industry leaders. Sweden’s Hybrit delivered ‘green steel’ – in which coal is replaced by renewable energy and hydrogen – to Volvo, for use in prototypes. It can be assumed these protoypes will be EVs given the continued evolution of ownership economics in their favour.

Often characterised as green energy laggards, there was evidence of India and China’s pivot toward renewables. The former reached 100 GW of renewable energy capacity, on the path to a 450 GW target by 2030. Meanwhile, new analysis of China’s Emissions Trading System said it could reduce the nation’s carbon emissions by three to six billion tonnes a year by 2060. Further, developments at the US National Ignition Facility raised hopes about the role of nuclear fusion.

Investors in New Zealand and Australia highlighted their tactics for supporting the transition of their economies to net-zero emissions despite, in the latter case, a lack of policy certainty or government action on climate-related disclosures. Absence of regulatory frameworks is less of an issue for UK-based asset owners, who were warned this week that regulatory pressures are among the reasons to reassess the sustainability of their property portfolios.

Analysts at AXA Investment Managers’ Rosenberg Equities found that investors are indeed talking to investee firms more regularly about sustainability. Using natural language processing, they found not only that ESG and related terms were used much more frequently in Q2 2021 investor calls, but also that conversations have moved on from compliance to a deeper focus on addressing underlying issues.

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