COP 26 anticlimax won’t slow the green agenda

CIO Daily Updates

by Chief Investment Office 02 Nov 2021

Thought of the day

The UN conference on climate change has so far produced more promises and rhetoric than concrete action. A pledge to halt deforestation by 2030—though encouraging—was not accompanied by a mechanism for enforcement. Hopes for decisive action have also been dented by the decision of Chinese President Xi Jinping to address the meeting through a note rather than in person or by video. This follows news over the weekend that while G20 leaders have agreed to stop financing coal power overseas, there was no pledge to phase out the fuel at home.

But the conference still has longer to run and could produce more substantial results. We also continue to see progress toward combating climate change from governments, investors, and businesses:

  1. While action often fails to match rhetoric, governments have been taking steps to reduce emissions through regulation and spending. As part of his fiscal package, President Joe Biden is seeking to win Congressional approval for a USD 555 billion investment in clean energy, with spending on buildings, transportation, electricity, and agriculture. The Securities and Exchange Commission, the US investment regulator, is planning to require companies to disclose more about the greenhouse gas emissions and climate change risk management plans. The EU has rolled out its “Fit for 55” target to decarbonize the economy and proposes phasing out new combustion engine passenger vehicles by 2035. The UK plans to do so by 2030. China wants all new cars to be either hybrids or new-energy vehicles by 2035.

  2. The green agenda is becoming less reliant on policy support along with rising private sector investment. Government green funding is a critical starting point and can help seed additional private sector investments. Private capital invested in the segment has been increasing, with global sustainable investing assets exceeding USD 35 trillion, or 36% of total institutional funds, according to a recent report from the Global Sustainable Investment Alliance. That’s an increase of 15% in 2 years. Global renewable capacity has been increasing on average by 12% over the past decade. If this pace is maintained, it would lead to a trebling of capacity in 9-10 years.

  3. Consumer preferences are guiding businesses toward lower-emission products and services. Growing concern over climate change is contributing to rising demand for cleaner forms of transport. This can be seen in the growing demand for electric vehicles. Despite cuts in subsidies from the government, Chinese consumers bought 1.79 million electric vehicles in the first eight months of 2021, a rise of 194% from the prior year, and compared to a rise of just 14% in overall vehicle sales. That pace of expansion puts China on track to meet government targets several years ahead of schedule. Tesla recently became the first automaker to achieve a market capitalization of more than USD 1 trillion after an order of 100,000 vehicles from rental company Hertz.

So, we continue to see a range of opportunities in companies active in renewable energy, transport, batteries, hydrogen, digitalization, and energy efficiency. For more on investing in the transition to a net-zero carbon economy, click here.