It has now been 10 months since political leaders, business and civil society met in Glasgow for the global climate change conference, COP26. With only a few months left until parties meet in Egypt for the next sitting, I reflect on progress made on the various commitments made at COP26 across regulation, national emissions targets and financing efforts.
What hasn’t gone so well
One key outcome from COP26, the Glasgow Climate Pact, saw countries agreeing to revise their official national climate mitigation plans – also called nationally determined contributions (NDCs) –and submit new plans by September 2022. The reason for this was that previous targets for reduction to 2030 would result in a 2.5 degree warming track, well above the levels needed to keep 1.5 degrees within reach. Countries needed to align closer to the Intergovernmental Panel on Climate Change (IPCC) request to halve emissions from present levels over the next eight years. However, as I write this, only 11 out of 196 have submitted stronger targets with the most significant polluters missing.
Another key commitment by many nations was to “phase down” domestic coal, end new international financial support for fossil fuels, and phase-out inefficient oil and gas subsidies. Of course, the war in Ukraine and the subsequent shock to energy systems in Europe and the world has thrown the implementation of these commitments off. We only need to look at Germany firing up old coal power stations and building out LNG terminals, India reopening 100 coal plants, and other countries subsidising fossil fuels to help smoothen the rapid rise in energy costs, for examples of this. However, we believe this is a rather short-term reversal of trends, as discussed below.
Nations also agreed the global methane pledge (30% reduction by 2030), to end deforestation by 2030 through increased conservation funding, and guarantee $100bn a year in support for least developed nations. All of these have seen little demonstrable progress in the last year, although final judgement will be held until COP27.
What has gone well
Despite the energy crisis incentivising a shorter-term return to polluting fossil-fuel sources of energy to fill in the “gaps”, the conflict has also aided climate action. It has refocused governments on energy security and independence, driving many countries including China and the United States to speed up their transition away from fossil fuels.
The US’s recent Inflation Reduction Act will unlock up to $375bn into domestic renewables and other low carbon technologies, and accelerate the US’s domestic decarbonisation. G7 leaders met in June, forming a ‘Climate Club’ to align their implementation of carbon-reduction regulations – such as targeting green electricity networks by 2035. Market economics remain in favour of renewable energy sources like wind and solar: in most jurisdictions they are cost-competitive and their short construction lead times means they will be favoured in countries’ pushes to reduce dependencies on energy imports.
Turning to the private sector, which had a significant presence at the last COP, we have had good news this year. The number of companies now committed to implementing a “gold standard” science-based climate action target has surpassed 3500, more than a third of global market capitalisation. To kick the plentiful net-zero commitments into real action, the Race to Zero UN campaign has just tightened its minimum expectations. Of course, shareholders also have a role to play in holding corporates to their green claims, while also implementing their own strategies.
The finance sector came out with large announcements at COP26, and membership of the Glasgow Financial Alliance for Net Zero (GFANZ) has continued to grow since. Minimum requirements of asset managers include aligning all investments to net zero by 2050 – but as expected the strategy and ambition of target implementation varies significantly between asset managers.
We have used our relationships with asset managers to test the scope, ambition, real-economy impact, methodology and implementation strategy of our asset managers’ net zero commitments. We have learned to establish a set of best practices and now use these to engage, all the while understanding that many are still evolving. It is vital that asset managers effectively use their levers to change to impact our real economy’s transition to net zero, and protect client investment from the materialising climate risks. We are also extending this to nature-related risks and dependencies, recognising that issues such as biodiversity loss are as intrinsically linked.
Looking ahead to COP27
While the official objectives of the next conference have not yet been published, we expect to see a renewed focus on implementing the various commitments made in Glasgow, recognising the urgency of further delaying action despite the energy crisis. The location in Egypt will also present opportunity for an even greater focus on the just transition, and emphasise the need for support for developing nations through adaptation funding and collaboration on cross-border policy mechanisms.
Two-thirds of Europe are under a drought warning, the worst situation in at least 500 years. Climate change is here and here to stay. It is clear that there is only one way forward, and we are optimistic that policy and market forces will make net-zero aligned investing unquestionable.