COP26 has come to an end and now the hard work of putting promises into binding policies needs to begin. There can be no doubt that the urgency is felt and the time for action is now.

We are acutely aware of our obligation to support the drive towards net zero – through active engagement with clients, corporates and policy makers, and developing high-quality investment solutions, that are labelled appropriately, so we can help our clients understand how they can support net zero. However, we know that we, and other asset managers, cannot operate in a vacuum. Bolder, collective action by governments is desperately needed both to achieve the overall goal and for us to achieve our aims. 

We looked to COP26 to provide a renewed sense of urgency, improved policy and collaborative action – across nations, governments and industries. Below are some of our reflections on the outcome of COP26 and what needs to happen next.

Has COP26 kept the 1.5°C goal alive?

In our view COP26 has delivered enhanced ambition across a number of areas, and is consistent with our view that the zero-carbon energy transition is going to shape the next decade and beyond. Unfortunately, the credibility gap between the pledges governments have made to hold temperature increases to 1.5°C degrees above pre-industrial levels (or even 2°C), and the actions they are taking, remains too large. In addition, the lack of finance to support the developing world who have contributed the least to the heating of the planet remains a major issue.

The good news is that the Glasgow Climate Pact anchored 1.5°C as the global climate target, with positive commitments made around deforestation, methane and the Glasgow Breakthrough agenda which focuses on provision of clean technologies. For the first time, there was also a specific reference to phasing down coal and inefficient fossil fuel subsidies – despite the wording being softened at the last minute to the disappointment of many stakeholders. It was encouraging to see the intent of collaboration between the world’s largest emitters, the US and China. The most important country level upgrade was India’s Net Zero 2070 commitment and its target of 50% renewable electricity by 2030.

However, COP26 has not delivered on strengthening credible actions sufficiently to keep the 1.5°C goal alive. The side agreements made at the meetings are not legally binding and we are doubtful will be transposed into concrete national legislative changes. Critically, countries’ aggregate Nationally Determined Contributions (NDCs) would still take us to a 2.4°C world according to the latest Climate Action Tracker analysis. Another considerable failure of COP was to address the imbalance of responsibility and action between the developed and developing world. The provision of promised climate finance of $100bn annually to the developing world, and support for loss and damage, was not delivered and a major disappointment. To put this into context, a recent study by the IMF found that that the production and burning of coal, oil and gas was subsidised by $5.9tn in 2020, of which $450bn were explicit subsidies – a shocking amount that exceeds the International Energy Agency’s recent World Energy Outlook estimate of $4tn per year needed to support the global net zero transition.

We are pleased to see that the private finance sector demonstrated a strong willingness to play their part in financing the transition to net zero. Mark Carney leads the Glasgow Financial Alliance for Net Zero (GFANZ) and announced that 450 GFANZ members managing $130 trillion of private sector assets – which equates to 40% of global financial assets – are ready to deploy their capital to support net zero. Many have questioned the credibility of the numbers given these $130tn are not yet committed to net zero and depend on policy makers and clients acting. We agree, but also believe that this is a positive reflection of intent. abrdn is part of GFANZ by being a member of the Net Zero Asset Managers initiative and we made our own carbon target announcement on COP26 Finance Day. This involves reducing the carbon intensity of the assets we invest in by 50% by 2030 and is part of our Net Zero Directed Investing strategy. For all GFANZ members, the next step is to demonstrate how targets will be measured and implemented in practice – we aim to provide more transparency on this in early 2022.

When it comes to improving transparency and disclosure, the UK has announced it wants to become the world’s first net zero-aligned financial centre and make publication of corporate net zero transition plans mandatory. In addition, the International Sustainability Standards Board (ISSB) was formed to deliver a comprehensive baseline of global sustainability disclosure standards.

In summary, COP26 sent a strong signal that there are positive changes taking place across public and private sectors to drive decarbonisation, but the pace is simply not sufficient to limit warming to 1.5°C. One ray of hope is the agreed change to the ratcheting mechanism to update NDCs. This is now requested by the end of 2022 rather than the original five-year update mechanism. The success of Glasgow can only really be judged once we see how many countries will put promises into credible, legally binding actions and rapidly reverse the current trend of rising emissions. Until then, the Paris goals will remain on life support.

It’s now time for us all to play our part in turning words into actions.

What does it mean for abrdn?

  • Continued engagement with policy makers – to highlight that implementation of promises into legally binding action is needed to support investors’ allocation of capital in line with net zero 2050 trajectories – and also engaging with corporates to encourage ambitious target setting and action plans
  • Incorporation of outcomes into our research and investment decision-making, including how it is reflected in our climate scenario analysis – we need to see more credible action for it to shift the dial on our policy assessment
  • Providing more transparency on how we will deliver against our own carbon targets and what being part of GFANZ means to us – which includes involvement in industry initiatives to help drive best practice on methodologies, and measurement of alignment with net zero goals.

Join us to discuss the outcomes of COP26 and the implications for our industry

On Tuesday 30 November we’re hosting a panel discussion – on the outcomes of COP26 and how climate change has shaped the landscape for investors – with our CEO Stephen Bird and the CEO of Phoenix Group Andy Briggs, as well as Sagarika Chatterjee, who co-leads the COP26 private finance team.

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