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Glasgow is the new Davos!

Clim8 Investment Team

01 November 2021 Cop26

COP26 opened Monday morning and already more than 50 private jets had landed in Glasgow with another 400 expected in the next few days *. Given this COP was advertised as being carbon neutral by the IPCC, we struggle to understand what the message to the wider public is. Rich people lecturing lesser humans and the Davos crowd having a second yearly party offsetting the frustration of the ‘zoom Davos’ in 2020 and 2021. The truth is that, putting all the noise and the ‘personalities’ aside, this COP started with a clear message from various parties: We need to achieve concrete actions and ‘KPIs’. 

The odds are clear: Paris’ COP21 defined the long-term goals of ‘keeping below 2 degrees’ and created a framework for the next steps. 6 years later, the evidence is clear that, when aggregating all the national pledges (called NDCs), we only have, according to the IEA, a 5% chance of staying below 1.5 degrees and a 50% chance of being close to 2 degrees. The current pledges (before taking into account the fluffy Russian, Saudi and Chinese carbon neutrality goal ‘by 2060’ and, of course, the fairly ludicrous non-commitment from Australia) won’t make it. Keep the stakes in mind: to reach 1.5 degrees at the end of the century, the world needs to reduce its emissions by 45% by 2030 and reach net zero by 2050. 1.2 degrees, according to the IPCC, is already ‘there’ and the ‘carbon budget’ is dangerously close to as little as a decade.

So what would be a success for Glasgow?

  • A concrete set of actions coupled with KPIs (Key Performance Indicators) that will enable the public to follow where their country and the world is on the path to achieving net zero. Not all climate change commitment laws are equal, and not all commitments are in law. Denmark’s Climate Act, which sets a target to reduce Denmark’s emissions by 70 percent in 2030 compared to 1990 levels, has a similar target to the UK, however there are important differences between these laws. For instance, under the Danish Climate Act, the Danish government will need to seek annual parliamentary approval of its climate change strategies. There are also some who have not codified their commitments in law at all, such as Norway. Furthermore, Norway plans to achieve “climate change neutrality” by purchasing offsets from other countries, a method of fighting climate change which many view as an impermanent and insufficient solution. 
  • Proper funding for new technologies that will accelerate the move. There is a gap between those who believe that technology will ‘sort it out’ (that is the basis of Australia’s plan) and those who want to limit consumption to an extent that we would reach net zero with the current technology. Both sides are probably wrong. We know from experience that tech will help but won’t do it all. Yet proper funding (and dissemination of information) on a global level would help reduce the cost of technologies such as carbon capture, storage or energy efficiency gains.
  • Price carbon! This is the 101 of harnessing the economic basics to the green cause. The European ETS system, for all its flaws, has provided a platform that over a period of 15 years has priced coal out and moved to the next cleaner technology (gas and then renewables). Making pollution expensive for the polluter works. So make the system world-wide asap. This is why we also like the recent Global Methane Pledge (target -30% in 10 years to 2030). While we believe pricing is best, a carbon tax would do, as long as the proceeds go straight to new technologies (kudos to the European Innovation Fund that spends €1.5bn a year raised from ETS pricing and going to new clean tech). Lastly, carbon adjustment mechanisms at the borders will be required to ensure investments towards low-carbon technologies are not threatened by CO2 dumping (e.g importing Chinese steel that uses coal at a time European steelmakers are invested in new processes using hydrogen to significantly lower the amount of CO2 released in the steelmaking process).
  • Proper contribution from rich countries to ‘developing’ countries. In 2009, a pledge was made for a yearly transfer of $100bn but only $80bn was reached in 2019. Some countries in the world simply ‘won’t make it’ if not helped (think the Maldives for example). COP 26 reiterated this pledge. But even this would be a drop in an ‘ever warming’ ocean (to misquote the British PM this weekend at the G20 summit) as, according to the IEA the world should spend $4-5tn (ie. $4,000-5,000 bn) each year to address the climate change challenges (we are not even going into the debate of mitigation vs. adaptation!).
  • Cynicism aside, finance can help. There is a flurry of alliances, the most important one being Action 100+, led by the most prominent asset managers. The intent is to be net zero by 2050 or earlier. Sure thing, you can stop funding coal projects, gradually exit oil and gas investments. What we would like to see are proper shifts of investments towards the sectors that need to be quickly decarbonised (e.g. power, transportation, steel, cement amongst others) and not a step up in investments towards low-carbon industries in the first place (e.g. big tech, media, pharma). We would like to see a significant amount of future funding being tied to climate performance (e.g. performance green bonds) to reward actual results, and not intent. 

In our dreams, we would like to see a net zero target before 2050 but it most likely won’t happen. Most Governments have gone away with pledging 2050 targets…the moral equivalent of St Augustine’s ‘Oh God, give me chastity, but not just yet’. 


*BBC News, Live commentary on COP26, 1st November 2021 & Daily Mail online, 1st November 2021, “Hypocrites airways’.