Developed nations must do more to reduce emissions

abrdn climate head says provisions have been ‘woefully inadequate’

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Eva Cairns, head of climate change strategy, abrdn

All eyes are on COP27, which will be held in Egypt in November to see whether promises will be put into binding actions and will get us closer to the desired 1.5°C outcome. Developed nations will need to take on a larger share of the burden of reducing emissions – and here the asset management industry can help.

Trillions of dollars will be needed every year to transition the world’s economies to net zero – and this needs to happen at an unprecedented pace. Emissions should be reducing at 7% per year on average to reach net zero by 2050 – but they are still increasing. Even during 2020 when covid brought many economies to a halt, emissions only fell by 6%.  

Developed nations need to deliver on their promise to provide climate finance to developing nations of at least $100bn a year by 2020, which they have failed to act upon so far. This figure is woefully inadequate – the developed world is largely responsible for the level of cumulative emissions in our atmosphere and needs to bear a larger share of the burden, enabling developing nations to transition and adapt while increasing living standards. India was criticised during COP26 for diluting commitment wording around coal from ‘phase out’ to ‘phase down’, but India faces the mammoth task of lifting millions out of poverty through development, while transitioning to sustainability. It has a target of net zero by 2070 and using 50% renewable electricity by 2030, but will need financial help to achieve this.

Unfortunately, global relations have deteriorated since COP26 following Russia’s invasion of Ukraine. Much human suffering has been caused and oil and gas prices have risen dramatically. This is likely to have an impact on the energy transition in different ways: it could push countries to move more quickly towards self-sufficiency and renewable energy, or we may see a return to coal in the short term to keep domestic energy prices down and ensure energy security. Some countries may also decide to source fossil fuels from Russia at lower prices – but potentially with consequences of sanctions and reputational damage.  It remains to be seen which effect will be the dominant one.

To reach net zero, the asset management industry has a significant role to play in investing in the solutions the world needs. During COP26, the Glasgow Financial Alliance on Net Zero announced that financial institutions managing $130trn of assets were ready to support the transition to net zero. At COP27, we will need to see how this is being put into practice via investment solutions, carbon targets and active ownership. The UK has announced it wants to become the world’s first net zero aligned financial centre and we welcome this. But we also require effective policy incentives to achieve alignment in the long run. For example, creating an investment environment that rewards companies and investors that take climate action and appropriate carbon pricing are both absolutely critical in enabling capital allocation in line with net zero.

For COP27 to become a turning point on the journey to net zero, countries must come back to the table with binding commitments, showing how they are reducing emissions right now. The G7 nations plus India and China are responsible for three quarters of the world’s emissions and are therefore key to progress. Ultimately, climate-related commitments can only be judged as a success once we see global emission decreasing at the pace required.

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