There is a lack of focus on Scope 3 emissions at COP28 and the general ambition is nowhere near where we need it to be, according to EQ Investors’ Louisiana Salge.
However, the head of sustainability said she is excited to see the “mass allocation” of investment to renewable energy and the tailwinds this will have for sustainable portfolios.
Watch the video for the full interview above, a transcript is below:
NK: Hello and welcome to this COP28 video. I’m delighted to be joined by a Louisiana from EQ Investors. How are you doing today?
LS: I’m good, Natalie. Thank you for having me.
NK: You’re very welcome. Very excited to hear about your views on all of the announcement that have been coming out. So what has stood out for you in terms of the flurry of announcements over the weekend, including the loss and damage fund, and then yesterday, Finance Day, there were quite a few more. What’s been a key point for you?
NK: Yeah, I mean, this COP has started off in a controversial setting really. And I actually have, because of my parents used to live there, so I know the culture quite a lot and it is a weird place to host a climate change conference.
And when I got into it, I was quite open minded and I thought it might help us moving away from this kind of polarised view of having the oil and gas and the polluters on one side and then the green movement on the other side to kind of bring those together. But, unfortunately, I feel like that’s not really what’s happening.
And, in fact, it has increased some polarisation and polarising views, which is a shame. I think that’s the missed opportunity. What I’m talking about here mainly is the fact that there’s been some debate over the explicit integration of fossil fuel phase out or down, the timeline of that in the final agreement. The COP CEO Al Jaber was seen on video to somewhat contradict the need for fossil fuel phaseout as well as have certain private meetings around private oil and gas contracts. So that’s a bit of a shame.
But I still think that this outcome, or this anticipated outcome of COP28, of including and explicitly including fossil fuel phase out or down of all oil and gas and coal is still on the horizon and somehow I think maybe the justification now that is coming out of this controversy might lead the likes of the CEO to actually take a more proactive stance.
Well, I’m positive about it. However, the most recent thing was that we’ve seen global oil and gas companies come together in a coalition which has never been seen before. This is a great first step but again, the focus was not a phase down or any anything to do with Scope 3 emissions, which is the production of their fossil fuel related products, but about the way that they’re producing, the Scope 1 and 2 and reducing that impact.
So again, it’s a great first step, there’s some positive hope on the horizon. But, again, the focus isn’t quite there. So that’s one thing that I’ve been thinking about.
A couple of other things. Great to see most countries around the world agreeing on tripling renewable energies. That’s a great tailwind for the way that EQ invests. And it’s a great thing because capital markets really have been expecting that, that explicit recognition by companies, countries around the world to scale up renewable energy as a viable source of alternatives to fossil fuels. And we’re excited to see that mass allocation against this. And then further on that, I think we’ve seen a couple of announcements on financing, but I think they’re just nowhere near where we need them to be.
But COP is not done yet, so I keep my eyes peeled.
NK: That’s true, we’re not even halfway yet, but just to touch on some of those points, this has been controversial from the start, isn’t it, it’s taking place, and those comments at the weekend and we saw yesterday the COP28 president double down on some of those references to science that they’ve always been led by the science. You mentioned before some research around the oil and gas contribution to renewables, and there’s not a lot there really is that?
LS: No, not really. We are we are an open minded house and we’re also guided by the science and what we hear a lot in the news and what our clients are coming to us with is it’s good that we’re getting challenged, but that’s why we do our own research.
And the challenge is often that we say, okay, we don’t back the oil majors in a sustainable portfolio, we just do not invest in them. And why is that? And some clients say, they do have a role to play in the renewable energy scale up we’re seeing. So, we took it to the numbers. We did look at exactly how much these oil majors play in the general grand scheme of renewable energy capacity increase, and that’s in the scale of like 3%. And it’s just not 3%, 10%, depending on where you go. But that is it’s just nowhere near messaging that some oil and gas companies are having with clients and with the general market.
And that’s what we were really hoping for the collaboration that just came out to focus in part, of course, on the operational footprint because methane is a massive problem, but also to put more numbers around that renewable energy support that these companies with massive cash flows could indeed support. But unfortunately, that wasn’t the focus. So, we’re still quite strong in that they don’t fit within our investment mindset and that there’s a huge risk attached to them as and when these policies are getting rolled out.
We’ve seen one, I don’t know if you saw this, but the US launched a very strong commitment to phase out methane emissions on their local and gas that just was launched this week. And those companies in the US, local producers will be hit by significant needs for capital expenditure to update their operations if they’re not yet aligning with net-zero goals.
So this is, again, one of the reasons why there is massive climate risk we want to avoid and we’re comfortable with that so far.
NK: Okay, fantastic. And it may be too early to tell, but what do you think the impacts will be on investors and how will you are viewing portfolios now in terms of what’s been announced so far?
LS: The first takeaway is that the main outcome of COP is the final agreement, which we don’t have yet. In whatever form, any reference to phase down or phase out of fossil fuel will manifest climate risks that we are anticipating in the market, that other investors are anticipating in the market. It will increase justification for having net zero aligned portfolios.
Therefore it will increase, the support for sustainable investments, which is what we’d like to see. Separately to that, the renewable energy commitments that have already been made are a massive tailwind in terms of investment. It’s big investments, right? That’s a tailwind that we’ve been anticipating. Like along the same lines of the Inflation Reduction Act and what’s happening in Europe, so again, very welcome and again supporting the types of businesses that we hold, which is great to see.
One thing which I would like to see more of is more decisive action on emerging markets. While actually emerging markets have been talked about a lot this COP, if you actually look at the climate flows that happening, let’s say over the last two years, only 2% went to developing nations, and we all know that they unfortunately bear the biggest burden of climate change impacts. Therefore, great to see the loss and damage fund, which only is kind of a proof of concept. It’s good news, but it’s a proof of concept, there’s very small flows still.
And just helping retail investors help access these types of jurisdictions that really do need climate finance. And one great thing that we’ve seen being talked about, but not yet quite kind of finalised, is the increased role of development banks in this. So by issuing debt, retail investors can buy bonds through social bond or green bond portfolios. And as the same way that we’re thinking about up issued by these development banks at this financing actually directly goes to climate change, mitigation and adaptation in emerging markets.
We think it’s a great way to kind of risk mitigate for the individual, but still allow the financing to flow through where it’s really needed. Hopefully we see more decisive action on that front. But still, you know, we’d like to see a lot more. You will hear me say this, year in, year out. Unfortunately, the way COP works is that it is limited to the lowest denominator in a way, the outcomes, and and we would love to see it gain more ambition over time. We really are running out of time. All the science tells us that we need to be to act now and more decisively. And unfortunately, again, this court probably hasn’t delivered that to that extent.
NK: That’s very sad to hear. Let’s hope there is some pulling back or some, some sort of turn around or something like you were mentioning around the COP28 president’s comments.
But thank you very much for sharing your insights with us. Always good to chat with you, Louisiana.
LS: Thank you, Natalie.