COP28: Very narrow path to victory

Morningstar's Lindsey Stewart says government, policy and finance need to work harder together to deliver 1.5 degrees

As COP28 fast approaches, ESG Clarity sits down with Lindsey Stewart, head of investment stewardship research at Morningstar, to discuss the barriers to 1.5 degrees, the action needed from all parts of the economic system and why he is optimistic for progress in Dubai.

The full transcript of the video is below:

NK: Let’s talk about the pathway to 1.5 degrees. What are the main challenges or barriers to maintaining that or even getting there?

LS: You used the word maintaining, and I think that’s an interesting point. There’s a lot of evidence that says that we are way off track in terms of achieving that 1.5 degree target. I think a lot of the focus on COP28 will be on corralling everybody, all of the delegates to remain invested in aiming for that 1.5 degree target, even if there is a very narrow path to victory in terms of achieving it.

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The fact is that maintaining the target and perhaps overshooting it by a little bit is better than aiming for a less ambitious target. People start to lose focus and then possibly overshooting that too. We’ve seen what the world looks like at the current 1-1.2 degrees of warming, and already that’s causing a lot of adverse effects.

We don’t we certainly don’t want that to get any worse than it is. I think keeping everybody on track and maintaining that momentum towards 1.5 degrees is going to be really, really important.

NK: Okay. Let’s talk about our industry that we work in. Would you say there’s a gap between the targets that investment managers set in terms of decarbonisation and the action that they actually taking? The gap between walking and talking perhaps.

LS: I think there is a gap, it’s still pretty significant. I think that is to be expected. There is a degree of pretty high ambition when these targets are set, and that’s absolutely necessary to achieving the goals that we’ve already spoken about.

If we framed decarbonisation and climate change as a system-level problem, it’s going to take everybody in the system working together – that’s investment management, finance generally, companies, but also the government and policy side to work together to deliver on the solutions that are going to deliver that decarbonisation and that reduction in the rate of temperature rise. I think is pretty pronounced in sort of some of the most exposed sectors, certainly the oil and gas sector. But also if you think about essential things that we’re going to have even in a decarbonised world,  [such as] steel, cement, mining that have significant challenges to address, we need to develop technological and technical solutions to achieve that that level of reduction that we were aiming for.

It’s really going to take government and policy to work together with finance and all of the other actors in the system to deliver on that.

NK: When you’ve been looking at some of the investment managers engagement with companies they are investing and their practices, what has been a good example of short term concrete actions in terms of decarbonisation?

LS: We’ve seen a lot of action from investment managers on Climate Action 100+, asset owners as well, really aiming at getting the disclosures they need from companies to make decisions on how they’re going to allocate their capital and how they’re going to continue to engage. So that’s certainly been important. But we’ve also seen action on decarbonisation aspects. The pacts haven’t been considered more recently, for example, things like obligations that oil and gas companies might have when they have to close down some of their fossil fuel assets. There’s been a lot of focus on methane emissions this year, so there’s a lot of focus on areas that haven’t necessarily been right in the core of the conversation over recent years. So they’re certainly taking action in those areas.

But again, there’s the age-old engagement versus divestment question. Some managers are reconfiguring some of their portfolios so that their Paris aligned or 1.5 degree align now. But there’s also a recognition that most asset managers do have to invest in the world as it exists, not the one that we would like to see. And so there’s more of an emphasis there on the engagement with companies, on what stewardship actions and escalations they’re going to take. And I’m sure that will go on for years to come.

NK: The engagement versus divestment debate rages on. Coming back to COP28, what would be on your wish list of announcements on Finance Day?

LS: There are still a few unresolved issues from previous COPs. The big triumph of last year was the loss and damage fund, which was more of a promise to set one up, but it still isn’t actually funded. Progress on that is going to be important to a lot of the developing nations.

Meanwhile, there’s also the long running $100bn question. That $100bn a year that’s been promised by developed nations to emerging nations to deal with the effects of climate change and adaptation. And there’s no evidence that that has ever been hit. The president of COP28 is quite keen to see that fulfilled. And so we’ll see if that that comes to the comes to fruition.

NK: Do you think we’ll get there? Or do you think we’re going to be left disappointed again?

LS: There’s not a lot of point to these conferences if we’re not going to be optimistic. So I’m going to choose to be on the optimistic side and say, I hope that we can reach a solution, but we’ll just have to see how that that works out.

NK: Okay, fantastic. Well, thank you very much for sharing your insights and predictions. We’ll have a chat after COP28 and see how we’ve got on.

LS: Looking forward to it. Thanks.


Natalie Kenway

Natalie is editor in chief at MA Financial covering ESG Clarity, Portfolio Adviser and International Adviser. She was previously global head of ESG insight for ESG Clarity and has been an investment journalist...