Why should investors take notice of COP26?Investors should take notice of COP26 because of the urgency associated with climate change, which represents the single largest threat to both their own future prosperity and the environmental conditions they and their children will live under. We often feel there is very little we can do individually to combat and prevent such large-scale sustainability issues, like climate change, but our own experience tells us investors can make an impact. Investors have to navigate the structural shift that is happening as we speak. And while no one can time the re-pricing of emissions heavy industries exactly, any movement especially on the issue of carbon taxes at this COP is a potential trigger to watch.
What are the key topics you will be following in the run up to, and during, the conference?There are many areas we are and will be watching intently, including a strengthening of carbon pricing, the phasing out of fossil fuel subsidies, and regulatory action to accelerate the decommissioning of thermal coal installations. We will also be looking out for mechanisms to facilitate what is referred to as a just transition – i.e. a transition where the dislocation caused by decarbonisation of the global economy is minimized and does not hit disadvantaged groups disproportionately.
What do you hope to get out of COP26?We expect more governments to commit to a mid-century net zero emissions target, with clear, medium-term sectoral decarbonisation roadmaps. Covid-19 economic recovery plans should support a just transition to net-zero emissions. In addition, we would like to see more commitment to implementing mandatory climate risk disclosure requirements – preferably aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
What does success look like in terms of follow through/results?If we are able to witness strong commitments and policies, in line with limiting global warming to no more than 1.5-degrees Celsius, we expect investors to support the net-zero transition with historically unprecedented capital flows. For example, we see significant investment opportunities across the global economy, not only in clean technologies and other areas of green infrastructure – what is sometimes referred to as the “obviously green”.
What are the investment implications of COP26 both in the immediate aftermath and longer term?
In markets where climate policy ambitions are meaningfully stepped up, this should have immediate implications for investment flows. Corporates that are today ahead of the climate policy curve will stand to benefit, and laggards will struggle. At the same time, there is a risk that we will still see some markets where climate interventions will leave more to be desired. Cl-mate laggards in those markets may get some breathing room in the short term, but in the longer term, we should expect to see that shifting demand patterns should favour climate leaders also in those markets.