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COP26: No matter the outcome, the private sector is the engine for change
COP26 is now just a couple of days away. While climate summits have in the past often flattered to deceive, there is a sense that this year things will have to be different.
A highly critical recent report by the Intergovernmental Panel on Climate Change, formal COP negotiations being pushed back by a year and a pandemic that has laid bare the vulnerabilities and inequalities in our society mean the world is demanding that countries scale up their climate ambitions and pledges dramatically.
Governments must unite to create the tax, legal and regulatory regimes – as well as funding scientific research – that will transform all nations into zero carbon economies. However, it remains to be seen whether COP26 and other political contributions will be sufficient to prevent global heating exceeding 1.5° Celsius. The litany of missed opportunities is long and growing. Also, with China by far the world’s largest greenhouse gas emitter, President Xi’s absence from discussions could be a huge setback for Johnson’s ambitions to get world leaders to agree a significant climate deal with real impact. Johnson wants to make history with this COP26 but, without unity from the largest emitting countries, will COP26 go down in history for the wrong reasons?
We believe that, given past failures and the challenges involved in getting nation states to align, the global private sector will ultimately be the engine of positive change and help us achieve a transition to a climate-resilient future. Humanity’s best hope of closing the gap between the trajectory of climate change and our desired future is for continued exponential advancement in technology and innovation.
While fundamental research is often government-funded, technological development, diffusion, evolution and growth are functions of the private sector. There are signs that companies will align with net zero independently of government decisions. For example, Fidelity International recently announced that it is looking to halve CO2 emissions in its portfolio by 2030 in its new climate investing policy. Even more significantly, a group of 733 institutional investors managing more than $52tn in assets – half of global assets under management (AUM) – have recently signed a new statement calling on governments to undertake five priority actions to accelerate climate investment before COP26. The 2021 Global Investor Statement to Governments on the Climate Crisis, was coordinated by The Investor Agenda and sets out five priority actions for governments:
- Strengthening 2030 nationally determined contributions (NDCs) by 2030 to align with limiting global warming to 1.5° Celsius.
- Committing to a domestic mid-century, net-zero emissions target and outlining a pathway with ambitious interim targets including clear decarbonisation roadmaps for each carbon-intensive sector.
- Implementing policies to deliver on climate targets, such as carbon pricing, phasing out thermal coal-powered electricity generation and removing fossil fuel subsidies.
- Ensuring that COVID-19 economic recovery plans support the transition to net-zero emissions.
- Committing to implement mandatory climate risk disclosure requirements aligned with recommendations by the Task Force on Climate-Related Financial Disclosures.
With half of the world’s AUM championing this agenda, it is a clear demonstration of capital markets and the private sector driving towards a sustainable future. This is an agenda companies will want to align with and capital they will not want to miss out on, and I think we will see an increasing level of commitment from the corporate world as global institutional investors begin reforming funds to net zero like Fidelity.
The challenge ahead is developing action plans towards corporate net-zero targets and incorporating these into binding legislation. Companies’ efforts will not be enough unless governments step up and make sweeping changes to scientific research, tax, regulation and legal structures, be more forceful in their approach, and introduce meaningful repercussions for failure.
Nevertheless, looking ahead to next week, I think we can expect more ambitious NDCs from some countries as we see more evidence of the importance and emphasis on climate change at government level. In Germany, for example, the Green Party secured almost 15% of the vote at the recent federal election, their best result ever. China’s concession to stop financing new coal operations overseas shows it is willing to move on climate to some extent, while Australia is outlining a plan that relies heavily on technology investment and development, rather than legislation and taxes, to achieve climate goals. Realistically, however, we’ll need the world’s largest emitters such as China, Russia and India to not only have the ambition to sync up with net zero goals but demonstrate more ambitious goals than the West.
From the UK’s perspective, it will be interesting to see how UK goals are received and whether the UK can use its Presidency to influence other countries to be more ambitious in their climate goals. It will be particularly interesting following the announcement this year of significant cuts to the UK foreign aid budget. Some may ask how Johnson can ask developing countries to “step up” to climate change whilst scaling back the necessary funding.
It is now “make or break” time for the world’s governments to tackle climate change and the world’s eyes will be trained on Glasgow next week. Here at Edison Group, it will be no different, and we will be offering our thoughts each day on the major developments and breaking news – over to you Mr Johnson…
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