Following two weeks of intense negotiations in Poland, the European heartland of coal, where many hundreds of policymakers slept in sleeping bags to ensure talks continued, the 2018 United Nations Climate Change Conference (COP24), against my initial prediction, ended on a successful note.

What was achieved?

Despite an attempted block by the United States, Russia, Saudi Arabia and Kuwait, 190 countries agreed on the ‘Paris rulebook’. This provides common, binding rules on how governments will measure, report on and verify their emission-cutting efforts, and restricts countries from backing out of their commitments. Under the Paris Agreement, countries must show they have met the targets set out in their nationally determined contributions (NDCs), starting from 2020 and then every five years after that. Under the NDCs, each country uses its own action plan to reduce emissions, according to its own geographical, economic and social specifications.

Did it go far enough?

In our view, no. What wasn’t agreed was how countries will set up their emission-cutting targets. Based on today’s emissions – which are the highest they have ever been – the world is set to experience at least a 3-degree Celsius warming. Scientists have said a temperature increase of this magnitude will cause irreversible damage to the planet.

In addition, allocating carbon credits to countries for their emission-reduction efforts and carbon sinks was delayed until 2019. Countries like Brazil attempted to weaken a set of rules on carbon markets, despite strong opposition from many other countries; these discussions have now been deferred until next year. However, at a time of growing nationalism and new political leaders dismissing climate change science,[1] achieving consensus between 190 countries was somewhat of a miracle. It signals some form of global acknowledgement that change has to occur.

What was also heartening was corporate presence at the conference, where many of the world’s biggest companies called for more action to be taken, and an even bigger presence of global youth. In particular Greta Thunberg, a 15-year-old student from Sweden, made headlines when she shamed climate change negotiators at the summit.[2]

What comes next?

Chile will hold the next UN Climate Change Conference in 2019, although 2020 is the more crucial gathering as countries will have to meet the deadline for their current emissions commitments and produce tougher targets for 2030. This is the year when we hope to see greater policy clarity and, in particular, how high-emission companies will be affected by mechanisms such as carbon taxes and emissions-trading schemes.

What does this currently mean for Newton?

Despite these new regulations, we are confident in our current climate-change action. At home, the UK climate-change policy has ground to a halt as a result of Brexit, and, elsewhere in Europe, governments are either experiencing protests or changes in political leaders. This means that 2020 will be particularly of interest.

However, we were very pleased to note that several of our investee companies have committed to clear, science-based emission-reduction targets to ensure that their plans for carbon reduction meet the level of ambition needed to limit global warming to well below 2 degrees Celsius.[3] We are members of the Science Based Targets Financial Institution Expert Advisory Group[4] and are encouraging all our investee companies to report in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

Otherwise, we continue with our work as a member of Climate Action 100+,[5] where we are leading talks with Centrica on how the company is strategically placed to address the business implications of climate change, and, with other investors, we are in talks with BP on the same topic. We have also released our very first TCFD report, which outlines how we think about climate change and evaluate it as part of our investment process. This will be updated annually.

We’re also keeping tabs on the European Union’s Action Plan on Sustainable Finance,[6] which is proposing regulation to establish a taxonomy for determining whether an economic activity is ‘environmentally sustainable’. It will apply to all financial-market participants, including asset managers.

Is it all a lump of coal?

Looking through the Intergovernmental Panel on Climate Change’s latest special report, titled Global Warming of 1.5C,[7] it is hard not to be deeply disturbed by its findings. In what is arguably the loudest call to action any group of scientists has made in history, a very stark warning has been issued stating that action must be taken within the next 12 years to halve emissions. This means deep and uncomfortable changes to the way we live – eating less meat, buying less ‘stuff’, and not driving or flying as much, among other necessary changes.

This being said, there are reasons to be optimistic: renewable energy reaching cost parity with fossil-fuel generation, the rapid growth of electric-vehicle adoption, investors (including ourselves) pushing for greater action on climate change,[8] and more. While it isn’t enough for the moment, the ‘greening’ of the global economy, in part through green investments, may well be the next industrial revolution, and one that we, on behalf of our clients, cannot miss out on.

[1] https://www.bbc.co.uk/news/world-us-canada-46351940

[2] https://www.youtube.com/watch?v=VFkQSGyeCWg

[3] https://www.wemeanbusinesscoalition.org/commitment/adopt-a-science-based-emissions-reduction-target/

[4] https://sciencebasedtargets.org/wp-content/uploads/2018/06/SBT-FI-workplan-5.18.pdf

[5] http://www.climateaction100.org/

[6] https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance_en

[7] https://www.ipcc.ch/sr15/

[8] https://www.ft.com/content/fda63c26-5906-11e8-b8b2-d6ceb45fa9d0

Comments

Your email address will not be published.

Newton does not capture and store any personal information about an individual who accesses this blog, except where he or she volunteers such information, whether via email, an electronic form or other means. Where personal information is supplied, it will be used only in relation to this blog, and will not be collected or stored for any other purpose. Comments submitted via the blog are moderated, and, as a result, there may be a delay before they are posted.

This is a financial promotion. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those countries or sectors. Please note that holdings and positioning are subject to change without notice.

Share