COP26 – ESG Feature
We would not be having this conversation if the problem had been sorted in one conference. Catherine Ogden, LGIM
funds will flow into developing cleaner technologies. “It is going to provide more capital into green technologies because the returns from non-clean tech will fall,” McAllister says. The agreement on the rules for such a market could be huge in reducing global warming. “It is an important missing piece in meeting institutional investor demand for carbon pricing,” Childe says. She points to action to develop a carbon market being taken by the EU and China, but the US, which is home to around half of the globe’s capital markets, needs to move in this direction. “We will see how carbon pricing develops, and it has to develop,” Childe adds. For Childe, technology is not the only solution. While it is impor- tant for removing carbon from our atmosphere, we need to look at all solutions, including those which are nature-based, such as timberland and agriculture, which have tremendous potential to sequester carbon. “Technology yes, but all sources of carbon removal need to be investigated from the outset and factored into climate mitigation strategies,” she adds. “And first and foremost, we need to focus on significant emissions reduction.” It is clear that human intervention is not the only way to solve anthropogenic climate change. “Historically, the focus has been on energy systems, but there is a growing recognition that agriculture and land use change have a significant impact on reaching our carbon goals,” Ogden says. “Deforestation commitments made by governments and financial institutions puts that recognition at a higher level and should lead to increased scrutiny in this area.” It appears that awareness of how to solve the problem is spread- ing beyond asset managers and consultants. “There is a greater interest in the implications of deforestation and biodiversity among trustees,” Ramscar says. “That is playing out in meet- ings where we are increasingly being asked about our engage- ments in this area.” However, the rules being agreed is the first step in a long jour- ney. “Post-COP, whilst some progress has been made, there are still no meaningful steps taken towards global carbon pric- ing,” Ramscar says. “That is critical. We need to quantify the
problem to incentivise consumers and producers on the path to net zero. There is still a lot of work to be done.” This is not just about pricing carbon emissions. “There are now stricter rules to reduce double counting and, hopefully, improve the levels of transparency and liquidity in voluntary carbon markets,” Mulligan says. “And a portion of the money derived from offsets will be directed towards climate adapta- tion in developing nations.
“The opportunity is truly revolutionary and substantial, but you also need to balance the risks that a complex and volatile landscape that rapid, potentially disorderly transition will impose on investors,” he adds.
Leave no one behind Millions of people round the world work in the coal and oil indus- tries, so net zero puts their livelihoods at risk. A just transition means companies need to re-skill and re-tool their workforces to avoid stranding them as the world shifts to cleaner energies. “Renewables and green energy require less people than legacy energy systems, so governments need to think carefully about the social impacts of the transition.” McAllister says. “The transition is likely to be quite volatile in some places,” he adds. Ogden says that a just transition is an important part of the net-zero pathway. “Achieving a balance between a just transi- tion and the imperatives of a net-zero transition needs work,” she adds. But decarbonising economies and not leaving people behind cannot be achieved through setting a single policy. “A just tran- sition means many things,” Mulligan says. “It can mean poli- cies to protect longer-term employment domestically, but it also means how we all help implement a transition to net zero which is seen as globally fair, including consideration of vul- nerable developing nations.”
Joining the club
Other important highlights included India committing to decarbonising its economy for the first time. The timeframe of its pledge has left some disappointed, but the announcement has been welcomed. “It has committed to net-zero emissions by 2070, but, importantly, that direction of travel has at least now been solidified,” Childe says.
The announcement from India, along with commitments by China, are welcomed by McAllister for providing a degree of regulatory certainty. “That should trigger investments into those emerging markets,” he says. But, perhaps showing that climate change is a political issue producing softer outcomes, McAllister gives an interesting conclusion to the conference in Glasgow. “It is amazing that it has taken 26 COP meetings to write down that burning fossil fuels is the primary cause of global warming,” he says.
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