Is It a Fair COP?


In November 2021 an event many understood to be the world’s last chance to get mounting climate change under control, COP26, the 2021 United Nations climate change conference, was held in Glasgow. For almost three decades the UN has brought together almost every country on earth for global climate summits. These summits are called COPs (‘Conference of the Parties’) and over this time climate change has gone from being a peripheral topic to a global priority. World leaders, negotiators, government representatives, businesses, and activists arrived in Scotland for twelve days of talks. This was a huge charge and thought to be more than just another summit, as most experts considered that COP26 had exceptional urgency.

COP21 took place in Paris in 2015 and for the first time ever, every country agreed to work together to; limit global warming to well below 2 degrees and aim for 1.5 degrees, adapt to the impacts of a changing climate, and to make money available to deliver on these goals. The Paris Agreement was thus born, a commitment to aim for 1.5 degrees, which was significant as every fraction of a degree of warming triggers the loss of many more lives, and livelihoods broken. Under the Paris Agreement, countries agreed that every five years they would come back with an updated plan regarding how much they would reduce their emissions. COP26 was the moment for countries to update their plans. However, the pledges laid out in Paris failed to limit global warming to 1.5 degrees, and the window for achieving this goal is fast closing, making the decade to 2030 crucial. So, as significant as Paris was, countries needed to go much further than they did at COP21 in order to keep the hope of holding temperature rises to 1.5 alive. Therefore COP26 was significant and had to be influential.


So, what actually happened at COP26?

To prevent the loss of all the world’s coral reefs and avoid putting 1.3 billion additional people at risk from extreme heat, the planet has to be kept as cool as possible.The enormous job at COP26 was for world leaders to keep the 1.5°C target within reach. After two weeks of discussions at COP26 all countries signed the Glasgow Climate Pact. This pact requires countries to come back in the next year with sturdier pledges and strategies. Thus the chance to limit warming to 1.5°C is still possible, but only just, and the actions over the next 12 months are vital.


Environmental issues cannot be seen in isolation from social ones and this is highly evident when it comes to the topic of Climate Justice, where nations who are suffering the most from climate change are those that have done the least to cause it in the first place. Additionally, awareness of the role of indigenous people and their communities in the fight against climate change and nature-based solutions needed to be increased. COP26 did seek to generate a space for dialogue and analysis which highlighted the importance of the role of indigenous peoples and their territories in the achievement of climate commitments within a context of green, fair and robust recovery, post COVID 19.

During COP26 we were made aware that it is impossible to stop deforestation without the participation of indigenous people and communities, and that nature will not survive without indigenous people. Therefore nature based solutions must consider indigenous people and commitments needed to be turned into reality. There is precious little time left in order to reverse deforestation and to do so we need to respect indigenous people as not just beneficiaries, but also co-designers and co-creators of solutions.


Many are concerned that agreements made at COP26 lacked enough support for the people who are suffering most from the impacts of climate change. Despite the most determined climate pact since Paris 2015 being signed at COP26 (which does represent critical momentum forward), experts have said that the summit displayed failure when it came to protecting the vulnerable nations by not adequately addressing the significant human-rights threats created by a warming planet.


As COP26 drew to a close, 197 countries approved a new deal that loosely keeps alive the Paris Agreement goal of limiting global warming to 1.5°C. However, each word of the agreement was meticulously negotiated, and due to pressure from India and China, it was revised at the last moment. This resulted in the wording being dampened down, as coal went from being ‘phased out’ to ‘phased down’. COP26 President, Alok Sharma called it a “fragile win”. The vulnerable and developing countries, which are being hardest hit by global warming, despite making diminutive contributions to it, expressed their opposition to this last-minute alteration in wording. Alok Sharma responded “may I just say to all delegates, I apologise for the way this process has unfolded and I am deeply sorry.” He added, “I also understand the deep disappointment but it’s also vital that we protect this package.”



COP26 and the Sustainable Investor


The main difference between COP 26 and previous COPs was the concentration on business. There was a large amount of business presence at COP26, rather than just political presence, and people are becoming more and more aware of the importance of financial services as part of the solution. There is a cognizance of the need to enable people to invest more sustainably and the urgency around combatting climate change has resulted in a spotlight being shone on the matter of ESG. The E, S and G are all highly relevant in the fight against global warming and cannot be segregated from one another as they are intrinsically interconnected.


We have seen colossal flows into ESG, sustainable, and impact investments. Although these new investment flows are going into sustainable investments, there is yet to be a fundamental switch across from existing traditional investing. However, with increasing political pressure and the urgency of climate change becoming more and more publicised, there is an argument that existing money will start to switch across, especially with the rise of female investors and younger investors who have inherited family wealth. As Millennials grow their wealth through earnings and inheritance expect sustainable investing to continue to grow.


At COP26 people were advised that their money is so powerful that it could either help tackle the climate crisis or do the opposite. Money and investment is one of the biggest weapons in the fight against the crisis, and if this hidden superweapon is released, it can build a better world. Richard Curtis during a COP26 speech pointed out that ‘making your pension green is 21 times more powerful at cutting your carbon than giving up flying, becoming vegetarian and changing energy provider combined. How we spend it and how we invest it is a crucial weapon in our armoury’. People were told that they could use their financial footprint to reduce their carbon footprint. Meanwhile, existing sustainable investors are already utilising this weapon.


COP26 made positive strides in the area of biodiversity, which can all too often be overlooked in the discussions about climate change. More than 100 global leaders, representing 85% of the world’s forest pledged to halt deforestation by 2030. Significantly, Brazil, China, and Russia are signatories to this agreement. Meanwhile, India committed to produce half of its electricity from renewable sources and to decrease the carbon intensity of its economy by 45%, by 2030. This is significant as India is the third-largest CO2 emitting country. We are yet to see whether this is enough, and how effectively this commitment will be implemented in reality.


From COP26, pledges were made to phase out internal combustion engine vehicles by 2035 in developed countries, and by 2040 in other countries. As transport contributes approximately 24% of carbon emissions globally (International Energy Agency), and road vehicles account for nearly 75% of these emissions, the implementation of electric vehicles is crucial to reducing carbon emissions. An electric uprising in transport needs to be underpinned by a commonly accessible EV charging infrastructure, which must be then be powered by renewables. This requires an increase in sustainable investing in order to achieve this.


With a backdrop of increasing global commitments to decarbonisation, the financial risks of climate change need to be assessed for investors. Climate change produces systemic risks in investments and companies in high carbon industries are going to be vulnerable to increased pressure on their valuations or an enlarged risk of stranded assets, as climate regulations around the world continue to tighten up following on from COP26. From a long-term perspective the risk around all fossil-fuel investments is increasing. The existing sustainable investor has mitigation of this risk, alongside the opportunities arising from being already invested in solutions, such as green energy, green infrastructure, and green tech. These opportunities will only increase as from an investment perspective, companies embracing and developing new technologies and those innovating future vehicles, and future alternative fuels (e.g. Hydrogen, biofuels) are going to be essential.


In conclusion, the world came back together at COP26 to secure two main objectives; firstly the setting of emissions targets for 2030 by each country, including phasing out coal, and curbing deforestation. Secondly to help generate conditions to enable investors to make the multitrillion pounds of investment required to limit temperatures rises to 1.5°C over the long term. Over those two weeks, delegates, activists, policymakers, and organisations came together from around the globe to combat climate change. But while the pledges and commitments made are a welcome step, it is obvious that much more is required, especially on the journey to Net-Zero. This cause, and the need to involve the people and communities most affected by this, is one that the sustainable investor remains committed to.

Disclaimer:
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