David Harrison, fund manager of the Rathbone Greenbank Global Sustainability Fund, assesses the results of COP 26
With the closing of the COP 26 conference in Glasgow, there will be much written about the successes and failures of the last two weeks. Delivering a clear cut and comprehensive long-term climate roadmap that satisfies all, has again proved challenging. Given the vast number of competing international interests and political bargaining that has taken place, this was perhaps inevitable. It does not, however, remove the urgency of the problem we face.
Ahead of COP 26 we had hoped for a viable long-term climate framework that would set a realistic pathway to the 1.5 degrees target. The Glasgow agreement keeps the 1.5 degree target potentially in reach, but there is much work to be done. There has been progress in recognising the need to accelerate away from fossil fuel use and specifically coal, but the language is tepid.
Net-zero commitments from the US and India (in 2050 and 2070, respectively) have been important steps forward. One clear positive to emerge from the conference has been the re-emergence of the US as a key player in the global climate debate, which is a significant step-up from a year ago. Equally, just 12 months ago few expected India to make a binding net zero pledge. The agreement between the US and China at the conference to co-operate on climate is also critical – the two countries generate almost 40% of the world’s carbon between them. Whilst specific details on the agreement are still lacking, we see this as important step forward as it could act as a catalyst for investment in carbon capture and vehicle electrification technology, amongst other areas.
We also see the agreements on global methane usage and deforestation as significant achievements of the conference. Methane contributes more than 30% of global warming and is one of the most abundant greenhouse gases. Yet it is an area where we can make relatively quick progress through changes in farming practises and livestock feed. More than 100 countries have agreed to cut methane levels by 30% by 2030. The pledge to end and reverse deforestation by 2030 was agreed to by countries including Brazil and Russia, which was critical for the agreement to have any meaningful impact.
Financial services commitments
Of course, significant responsibility to drive positive climate change behaviour sits with financial institutions and investors, so the announcement that asset managers with $130 trillion have committed to net zero is an important achievement of COP 26. We expect this number to grow in the future, but it is step-change from several years ago. Asset owners can play a key role in driving better climate performance from the companies they invest in through collaborative engagement with management teams and through divestment of non-compliant businesses
Reflecting on COP 26 has certainly reinforced our conviction on several long-term climate-related investment themes we have exposure to in the fund. The shift away from fossil fuels is accelerating (80% of all new energy investment in 2020 was renewables-based). Yet renewable penetration remains relatively low on a global basis. Equally, electrification of the global transport fleet is still at an early stage, at less than 5% of the global transport fleet. Most vehicle makers are now pivoting to a full electrification strategy which creates significant opportunities for companies that can help deliver this. Moreover, a sizeable proportion of future carbon reduction will be delivered by investment in more efficient infrastructure and supported by a wider use of technology.
Ultimately, we will only know the true success of COP 26 in a few years’ time. Whilst there is clear disappointment around the ambition of commitments in areas such as fossil fuel reduction, there have been some important steps forward that should be acknowledged. The largest carbon emitters are now in a more constructive dialogue, which provides a baseline for future progress. Asset owners are also providing more transparency around their own practices, with a commitment to help influence positive climate behaviour.
There is much work to do, but we have moved forward in the last two weeks. We will need to see a much clearer declaration and ultimately an ambition to act more quickly, at COP 27 in 2022.
