COP26: Is the 1.5°C dream melting away?
08 November 2021In the Cairngorm mountains is a small patch of ice known as the Sphinx. Last week the shrinking ice vanished for what is believed to be only the eighth time in 300 years. Those familiar with the mountain range point the finger of blame at climate change.
150 miles to the south, the leaders of the world were gathering in the ‘blue zone’ of the Scottish Events Campus in Glasgow, to discuss and agree on the actions required to fulfil the ambitions of the Paris Agreement in keeping global warming below 2°C and, ideally, to no more than 1.5°C.
What we learned during week one
India’s commitment to reach net zero by 2070 was the most important step forward at a country level. As we highlighted in our piece ‘COP26: The last chance saloon', the onus on wealthy countries to upgrade their targets is at least as high as it is for developing countries. To increase the likelihood that the Paris Agreement’s objectives can be met, as many advanced economies as possible need to commit to net zero 2040 targets. As yet, there hasn’t been a meaningful increase in the amount of developed market funds mobilised to support the transition and adaptation to net zero in developing countries.
The absence of Chinese President Xi Jinping and Russian President Vladimir Putin disappointed climate change campaigners and other world leaders. From those present there were many impassioned speeches delivered – including UK Prime Minister Boris Johnson’s warning that the world is at “one minute to midnight” on climate change, which underlined the urgency for action.
There were some positive announcements, including agreements aimed at ending and reversing deforestation and reducing methane emissions by 30% by 2030. At this stage, however, the commitments are not binding and there are few details. The agreement between 20 countries to phase out the use of coal was also welcomed, although this came without the endorsement of China, India, Australia and the US as the biggest coal-dependent economies.
There was a full day devoted to the role of finance in carbon reduction and the development of long-term net zero solutions. Mark Carney, the UN Special Envoy for Climate Action and Finance, has secured the support of 450 members of the Glasgow Financial Alliance for Net Zero – including abrdn – who have the ability to channel trillions of dollars into clean infrastructure and technologies of the future.
UK Chancellor Rishi Sunak’s announcement that asset managers, regulated asset owners and listed companies will be required to publish transparent decarbonisation plans from 2023 was also a step in the right direction. Fragmented strategies, disclosure requirements, taxonomies and standards will fail to deliver the desired mobilisation of capital. Co-ordinated and consistent global standards are needed, but as yet little progress has been made.
How investment can be part of the solution
At abrdn, we believe asset managers, in particular, have a crucial role to play in investing in transition leaders and climate solutions, acting as responsible stewards on behalf of our clients, and integrating climate-related research into our investment processes. Last week we announced our intention to reduce the carbon intensity of our assets by 50% by 2030 compared to a 2019 baseline, through a climate change strategy focused on Net Zero Directed Investing (NZDI). We also re-set our operational targets with the ambition of being net zero by 2040.
Industry-led initiatives such as the Net Zero Asset Managers initiative, to which abrdn is a signatory, have demonstrated that there is appetite to increase the proportion of assets flowing into net zero-directed solutions. However, governments also need to be more ambitious and back up their commitments with affirmative action.
As highlighted by our CEO Stephen Bird when announcing our carbon intensity targets, we need an environment which rewards companies and investors that go green. Along with pledges to halt financing for fossil fuel development, incentives in the form of appropriate carbon pricing are absolutely critical, and we believe that the role the tax system can play in the transition should be considered at national and global levels.
As world leaders departed Glasgow and their officials and representatives continued the discussions, the world may not have heard enough to breathe a sigh of relief. While we expect a major energy transition to happen, the goal of ‘keeping 1.5 alive’ as a result of COP26 is unlikely.
In the meantime, we will continue to use our influence and insights as a global investor to engage with policy makers and help to deliver cleaner, safer and more positive futures, for this generation and those still to come.