IFA Magazine talks to M&G Investments’ Maria Municchi about the outcomes of the COP26 climate change conference and how she believes that a sustainable multi- asset investment strategy is well set to capitalise on the opportunities presented.
IFAM: It seems that the UN’s COP26 climate change conference at the end of last year has sparked interest and raised awareness about sustainability right across the board. What do you see have been the key takeaways and opportunities arising from COP26?
MM: COP26 has been very much talked about and covered by news channels which has brought a lot of focus to it. It is a very important event because it brings together many countries to discuss the advancements being made in the fight against climate change, but also what could be the next steps, the next areas to focus on. The outcomes of COP26 have often been described as ‘mixed’, but that often happens in such instances. It’s because the transition towards a lower carbon economy and the fight against climate change are very much an evolving process. We’re very far from achieving these goals.
However, I think there are some very positive elements that have come out of COP26. In particular, it has helped to focus people’s minds onto some specific areas that are crucial if we are to achieve and limit the global temperature increase to below 2 degrees – and ideally 1.5 degrees – centigrade.
I would describe its key achievements across three categories:
- The energy mix
There were some important focus areas on this subject which emerged during COP26. The first of these was the emphasis on coal. Coal is responsible for a very large amount of global carbon emissions on an annual basis and is therefore a key element in the fight against climate change. At COP 26, it was hugely important that coal was named and identified as one of the key areas of action required. We have seen a very strong pledge and commitment to phase down the use of coal. Specifically countries agreed to reduce the amount of coal used for production of electricity and therefore to switch towards a different source, mainly renewable source, in order to reduce overall carbon emissions.
Another important area was the focus on methane, another greenhouse gas that is less talked about than CO2. However, it is still very important in terms of its impact on warming. The difference with CO2 is that methane tends to last in the atmosphere for a much shorter period of time. Therefore, on a longer term perspective, it is a bit easier to control. However, global temperatures are already increasing. Recent reports have demonstrated that the last seven years have been some of the warmest on record since 1850. Because of this it’s very important also to take into account what the short term effects of methane could be in global warming. It is very interesting how this has become also a very key point for COP26 with ambitions to reduce the emission of methane as well.
Those are two very important elements concerning the energy mix. They have some very important implications for not only energy providers, utilities and the fossil fuel industry, but also broadly for all industries. That’s because we all use energy, and so the way this energy is produced affects every economy. It will be very important in the years ahead.
- The environment
In this area of focus we have seen some very important achievements, around the commitment for stopping deforestation and reversing parts of it by 2030. This is extremely important because biodiversity, the ecosystems of forests in particular, which are at the centre of this pledge are a key carbon sink. In other words, they’re able to absorb part of the CO2 emissions that we input into the atmosphere. In order to be able to achieve the target of a net zero and lower carbon economy over the long term, they play an incredibly important role. Being able to protect and enhance our forests is crucial. Forests are also crucial to maintaining ecosystems in place, which are also very important in regulating climate, but also shorter-term weather events.
These are all very important and I think a very good outcome from COP26 is this renewed focus on the environment and deforestation in particular.
I’d also point out another area of interest around net zero transportation, in particular around vehicles. Of course, we know the importance that this could have for the automobile industry, but also more broadly for our societies.
- Global finance as an enabler
Finally, the third area to highlight that will continue to be extremely important is around financing. We know that this vast transformation which is needed and the ambitions of different countries around the world towards a low carbon economy require financing. It also requires changing the way we invest today: in particular, moving financing from certain sectors and areas to others.
There have been some important commitments coming from COP26 across the private financial sector. In addition, there has also been an increase in financing for emerging markets countries. These countries are very often in a different position from developed countries. Over the years, developed nations have been able to reduce carbon emissions by outsourcing some of their impacts to other countries around the globe. It’s very important that we take action in a global sense to be able to achieve those objectives. It’s one planet and we all have to co-exist on it together.
Those are some of the positive and negative outputs from COP26 which I’ve taken away. Although clearly there is room for improvement, the fact that so many countries got together to discuss this topic and strategies to deal with it is extremely important for what is facing us in coming years.
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