The US and China: enter the Eagle and the Dragon.
In the space of six short weeks in 2020, the future of the Paris Climate Deal was transformed by two significant events.
On 22 September 2020, shortly after US President Donald Trump called the Paris Agreement “a one-sided deal” and criticised China for being “the world’s largest source of carbon emissions”, President Xi Jinping of China announced that China would scale up its intended nationally-determined contributions (under the Paris climate agreement) by adopting more vigorous policies and measures. In practice, this would see China achieving a peak in carbon dioxide emissions before 2030 and carbon neutrality before 2060. Xi added that “the human race cannot ignore the warnings of nature over and over again”. He also urged other countries to pursue a “green recovery of the world economy in the post-COVID era”.
Then on 3 November 2020, the US elected a new President, and one that has a very different approach to the challenges of climate change. Joe Biden made climate change one of the key pillars of his campaign and has re-joined the Paris Climate Deal in one of his first acts as the 46th President.
Biden’s team have already started planning to restrict oil and gas drilling on public lands and waters, increase mileage standards for cars, block new pipeline projects that transport fossil fuels, provide federal incentives to deploy renewable power, and mobilise other nations to make deeper cuts in their own carbon emissions.
The new treasury secretary, Janet Yellen has also publicly discussed a carbon tax. As governments across the world look for new methods to pay for the huge deficits run up due to the COVID-19 pandemic, a carbon tax may be a politically palatable option.
Market mechanisms have begun rewarding environmentally-friendly companies with higher valuations. This is due to them being recognised as less exposed to regulation and less likely to become redundant over the longer term. The more this continues, the more we will notice management teams incorporating climate solutions into their operations, products and services.
Climate challenge can be thought of as a three-legged stool for the stakeholders that need to participate: Consumers, Industry and Government. Studies from across the world now show populations are concerned about climate change and are willing to change their own behaviour. Industry can now see the economics working in favour of sustainability and are willing to commit capital to the effort and starve funding for ‘de-merit’ activities. That then leaves Government – while European governments have taken a lead, the final awakening of both the Chinese and US governments will provide the much-needed impetus to reach our carbon targets over the coming decades.
In the M&G Climate Solutions Fund we have a focus on clean energy, green technology and the circular economy. All key areas for investment and growth as we transition to a carbon neutral world over the coming decades.
About Randeep Somel
Randeep joined M&G in 2005 as a fund managers’ assistant on the Equities team. At different stages between 2013 and 2019 he was fund manager or deputy manager of the Global Themes, Managed Growth, Global Recovery, Global Select, Pan European Select and Positive Impact strategies. In November 2020, he became manager of M&G’s newly-launched Climate Solution strategy. Prior to joining M&G, Randeep worked for State Street in a fund accounting role. He graduated from Birmingham University with a degree in economics in 2003. Randeep has the IMC and is a CFA charterholder.
