The 26th edition of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) – rather more simply known as COP26 – takes place in Glasgow, Scotland from 1-12 November. Attended by leaders from all over the world, it will be the first formal review of countries’ climate policies since the landmark Paris Agreement of 2015.
It comes after the Intergovernmental Panel on Climate Change (IPCC) issued its starkest warning yet that tackling global warming is ‘code red’ for humanity. The report, issued on August 9, warned that the Earth had already warmed by 1.09 degrees Celsius since 1850, and the effects were being seen with raging wildfires, increasingly extreme weather and melting ice caps.
The extent of global warming graphically illustrated in the IPCC August report.
The past five years have been the hottest on record, making it ever more important to massively cutting greenhouse gas emissions before irreversible climate damage occurs, the report says. The Paris Agreement calls on nations to limit global warming to a maximum of 2 degrees Celsius from pre-industrial levels by 2100, and ideally to restrict it to 1.5 degrees. It was signed by all 196 members of the UNFCCC. To do this, the world needs to achieve net zero emissions by 2050.
So, will world leaders rise to the occasion and take some serious action? COP26 has four goals: (1) Secure global net zero by 2050 to keep 1.5 degrees within reach; (2) Adapt to protect communities and natural habitats; (3) Mobilize finance to fund this, and (4) Work together to deliver solutions.
Based on this wish-list, Lucian Peppelenbos, climate strategist at Robeco, says investors are therefore looking for four things to happen:
Beefing up net-zero policies:
Countries need to accelerate their decarbonization under what’s known as the ‘ratchet mechanism’ – making progressively bigger cuts in emissions to reach net zero. Robeco has its own roadmap to become carbon neutral by 2050 in all investment strategies by 2050, using the framework of the Net Zero Asset Manager’s Alliance.
“The policy ambition gap is factor one hundred,” he says. “Currently, the 2030 pledges only lead to a 0.5% emission reduction, whereas a 50% reduction is needed to reach the 1.5 degree limit. So, it’s a good COP if pledges are made to at least get to a 25% emission cut by 2030, as that puts the world onto a 2 degree trajectory.”
Using nature-based solutions and carbon markets:
Over half of all greenhouse gas emissions are absorbed by nature. Forests, land and oceans are our biggest allies in limiting global warming – and are also critical to resolving the biodiversity crisis. The protection and restoration of nature can be boosted through funding from carbon credits. Robeco has positioning papers on these topics along with engagement programs to accelerate decarbonization and to tackle deforestation and biodiversity loss.
“Trading in carbon credits across countries, and clear rules for voluntary carbon markets, are essential for accelerating cost-effective action on the short term such as reforestation,” says Peppelenbos. “It’s a good COP if countries reach a deal that enables the execution of Article 6 of the Paris Agreement, which targets international cooperation through carbon markets.”
Financing adaption and mitigation:
The Paris Agreement aims to stimulate finance flows from rich to poor countries in order to mobilize USD 100 billion a year for climate action. This is one of the most controversial elements of the agreement, as the goal is seen as being far out of reach. Robeco offers climatic and thematic funds that provide a means of investing in climate solutions through mainstream equities and credits, green bonds and via the Sustainable Development Goals.
“Global warming has historically been caused mainly by developed markets, but the costs are mainly borne by emerging markets,” says Peppelenbos. “For this reason, countries agreed to the USD 100 billion per year in funding back in 2009. This pledge has not been fulfilled. It’s therefore a good COP if a post-2020 finance deal is reached.”
Mandatory and harmonized disclosure:
Currently, this is random and voluntary. This year saw a strong push for global harmonization of climate disclosure, and for making it mandatory. Robeco routinely discloses the carbon exposures of the assets that it manages under guidance from the Taskforce on Carbon-related Financial Disclosures (TCFD). Investment teams also use emissions data from investee companies.
“This already has support within the G-7, and it has been boosted by the new EU Sustainable Finance Disclosure Regulation and EU Taxonomy which will standardize reporting across the 27-nation bloc,” says Peppelenbos. “We already require climate disclosures from companies in our investment process. It’s a good COP if climate reporting becomes mandatory across the world.”
COP26: Good COP or a bad COP?
During the COP26 climate conference in Glasgow Robeco will produce the COP26 video series, five video reports that help you assess whether the summit was a good COP or a bad COP. These videos are available on our COP26 landing page.
This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation. The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.