Rebecca Craddock-Taylor, director of sustainable investment at Gresham House Asset Management
The outcomes of COP26 will drive policy changes that will create significant investment opportunities, but also introduce new risks that need to be built into investment analysis. If policy commitments do not align to a 1.5˚C temperature pathway, investment capital will become less focused on supporting the transition and, by necessity, more focused on managing the physical risks associated with higher temperature pathways.
To ensure private capital continues to focus on financing the solutions supporting the transition, governments must be more ambitious with commitments to net zero and be held to account through legally binding and enforceable targets. We need a clear global framework to tackle climate change, anchored around clear investment requirements from the public and private sectors.
A successful outcome for COP26 would also be an agreement on a global carbon price that accurately reflects the risks of climate change. Those responsible for creating carbon emissions should pay the true costs of the damage it causes. Without an accurate carbon price, investors, businesses and governments will end up paying far more over the long term in order to manage and mitigate the physical risks of climate change.
Raphael Pitoun, portfolio manager of Trium’s Sustainable Innovators strategies
Unfortunately, rich countries have not met the $100bn commitment from the last COP to support decarbonisation in poorer countries. However, emerging countries – and particularly China and India – are expected to be responsible for most of the marginal emissions in the coming years. It remains unclear whether these countries will agree to a detailed carbon reduction plan with precise milestones.
In most cases, plans for asset managers to pressure listed corporates to reduce emissions have been unsuccessful, and corporates must go further in prioritising carbon reductions. Creating stronger incentives, such as linking carbon emissions to executive compensation, would be a welcome step.
Meanwhile, we continue to see nightmarish business models generously financed by the private world. There is a woeful lack of regulation to encourage sustainable investments from start-up financing and venture capital investors, who are supposed to fund tomorrow’s corporate leaders. This has been one of the most destabilising aspects of the financial sector’s response to the climate crisis and it urgently needs to be addressed at COP26.
Luc Pez, co-manager of the OYSTER Sustainable Europe Fund
We have limited expectations for COP26, with many G20 members still lagging on individual and collective ambitions. Public spending on fossil fuels continues to dominate, accounting for 45% of the G20’s $660bn energy recovery package and outpacing investments in clean energy. However, we remain hopeful major emitters will take the opportunity to show greater commitment to clean energy.
The EU is clearly willing to lead on the issue, recently unveiling an ambitious package of proposals, but its approach remains cumbersome and dogmatic and often lacks long-term industrial planning. With world energy requirements set to more than double by 2050, issues like the decarbonisation of energy, grid integration and EV charging infrastructure must be approached carefully to reach the 1.5°C target. Unfortunately, we remain concerned by a lack of understanding of the true complexities of the energy transition.
From an investment perspective, sectors like natural resources and transport will have a key role in creating a more sustainable future. While these sectors have historically had a poor track record on emissions, companies that can transform rapidly are particularly appealing and often undervalued by markets.
