Shifts & Narratives #3 – The ‘make it or break it moment’: why investors should care about COP26?

May 19, 2021

The Conference of the Parties (COP)26 in Glasgow has been hailed as a turning point in the global fight regarding climate change amid a new US administration and a long and strenuous exit from the Covid-19 pandemic. Six years on from the Paris agreement, the objective is clear: limit the temperature rise to 1.5°C above preindustrial averages, which means reaching net zero carbon emissions by 2050, and cutting them by half this decade.

Currently we are not on the right track. In 2021, carbon emissions are set to rise at the second fastest annual pace on record — second only to the rebound after the Global Financial Crisis (GFC) in 2008. This runs counter to the growing narrative from policymakers and the private sector, who claim that climate change is the top priority on the global agenda. Indeed, we have seen climate change take centre stage in global macroeconomic and geopolitical dynamics, especially with regard to the US China relationship. Although Covid-19 recovery packages provide a window of opportunity for ‘building back greener’, thus far, these plans fall short with regard to their climate ambitions.

The Covid-19 crisis has also put the spotlight on the social dimensions of the fight against global warming, calling for a ‘Just Transition’ to a low carbon economy. What do these dynamics mean for investors? What can they expect from the COP26 in Glasgow? In this paper, we provide a guide for investors on how to prepare for and understand the upcoming climate conference in Scotland.

What are the key implications for investors in the run-up to Glasgow?

Investors are increasingly making bold announcements in terms of reducing carbon footprints. This attitude is welcome. However, figuring out how to translate ambition into reality will be the challenge. On this front, it will be crucial for investors to assess their starting point, to define short-, medium- and long-term plans, and to design a plan that encompasses all facets of their business activity, from investment to reporting. New indicators – such as temperature scores – and new methodologies are becoming available. They have their respective merits and drawbacks but gaining early exposure to such innovations would enable investors to familiarise themselves with these new approaches.

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