COP26: Good COP or Bad COP?

Cop 26: A summary

The United Nations Framework Convention on Climate Change (UNFCCC) held its 26th Conference of the Parties (COP) in November 2021, in Glasgow: 

  • Going into the conference the world was on track for a ~2.9⁰C scenario* 
  • This was an opportunity for countries to ratchet up their ambitions (Nationally Determined Contributions) under the Paris Agreement, which aims for a well below 2⁰C scenario, with ambitions towards 1.5⁰C

 

We summarise the key takeaways from the Glasgow Pact below:

Our verdict

The good: progress was made at COP26, closing the climate policy gap by half a degree

The bad: this was insufficient to meet the ambitions of the Paris Agreement

The ugly: some nations pushed for the watering down of commitments

What's next? COP27 in 2022 and beyond

Governments will need to close the climate policy gap towards a 1.5⁰C scenario, with a deadline for nations to ramp up ambitions by the end of 2022, which investors and companies can mirror.

Governments, investors and companies should continue to focus on ensuring
transparency of decarbonisation ambitions and climate financing, to ensure we can collectively get on track to deliver the Paris Agreement.

Governments, investors and companies should continue to recognise the role
of a just transition and nature-based solutions, with explicit policies and
targets, as well as engagement opportunities, in this space.

COP26: Takeaways for investors

Our approach to climate change hasn’t changed, with our framework set out in our recent climate paper, outlining the Isio climate client journey.

The Isio climate journey transitions through climate training, to the consideration of climate-related risks and opportunities within beliefs and policies, to agreeing and assessing the investment strategy and managers against a set of climate-related targets, to then the ongoing monitoring and reporting.

COP26 has highlighted the need for explicit focus on certain areas within the Isio climate framework

  • The consideration of social factors in the context of climate change, including the importance of a just transition (the process of moving to a more sustainable economy in a way that’s fair to everyone – including people working in polluting industries)
  • Understanding the role of nature-based solutions and biodiversity in tackling climate change, for example allocations to forestry, in the context of decarbonisation and emissions offsetting
  • Understanding opportunities in carbon trading, under the Paris Agreement carbon trading architecture, which will be open to investors, and which investors should seek to engage with managers on resulting risks and opportunities
  • Ensuring managers are monitoring the risks arising from thermal coal stranding**** and methane emissions, which may require explicit attention following the Glasgow Pact.

Contact any of our experts today to find out how Isio can further support you in your climate journey

Cadi Thomas

Head of ESG Research -  Investment Advisory

cadi.thomas@isio.com

Ajith Nair

Head of Research -  Investment Advisory

ajith.nair@isio.com

Leah Worrall

Deputy Head of ESG Insight -  Investment Advisory

leah.worrall@isio.com

Mark Irish

Deputy Head of ESG Consulting - Investment Advisory

mark.irish@isio.com

Sources and notes

*Climate Action Tracker

**Unabated coal refers to coal power stations without technologies/measures to reduce end-of-pipe emissions, allowing for the use of coal power under the future promise of carbon capture and storage, which has yet to be deployed at scale.

***Inefficient subsidies is a term coined by the G7 and G20 which has never been clearly defined and argued by stakeholders to provide loopholes for the application of such subsidies.

****The Network for Greening the Financial Sector defines asset stranding as: assets suddenly losing financial value ahead of their anticipated economic lifetime as a result of changes in legislation, market forces, disruptive innovation, agent’s preferences, environmental shocks, or climate policy in particular.