COP26: expect unprecedented investment flows if leaders act

by | Nov 3, 2021

The world’s spotlight is centred firmly on Glasgow, where the most pivotal climate change summit ever is now underway.

The investment industry’s eyes will be fixed on policymakers from across the world, with strong emissions reduction agreements needed to ensure global warming does not exceed 1.5°C by 2050.

Below, 12 investment professionals discuss desired outcomes of COP26, as well as various investment implications likely to arise from the critical conference.

Jonathan Bailey, head of ESG investing at Neuberger Berman

COP26 is about world leaders turning commitments into action. We are looking for progress in three key areas: nationally determined contributions (NDCs) to emissions reduction, support for developing nations, and finalisation of the Paris Rulebook. More than 70 countries missed a 31 July deadline to update NDCs, while others, such as Brazil and Mexico, ‘updated’ NDCs by restating 2015 targets. China, the world’s biggest polluter, has announced a new target, but has not formally submitted it to the UN.

In addition, developed nations have fallen well short of their commitment to provide an already inadequate $100bn per year in climate aid to the developing world. Even the most basic poverty-prevention needs imply energy provision in some poorer countries must double by 2030 and triple by 2040, and that investment is required to make this sustainable.

Finalisation of the Paris Rulebook will have a direct impact on financial markets and investors. In particular, agreement on Article 6 could help to establish a true international carbon market, tackling the current patchwork of local regimes that has led to often wide disparities in pricing. This could potentially transform the competitive landscape for businesses disadvantaged by the current fragmentation.

Eric Pedersen, head of responsible investments at Nordea Asset Management

We often feel there is very little we can do individually to combat and prevent such large-scale sustainability issues, like climate change, but our own experience tells us investors can make an impact. As an asset manager, there are many areas we will be watching intently at COP26. For example, we would like to see more commitment to implementing mandatory climate risk disclosure requirements – preferably aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.

If we are able to witness strong commitments and policies, in line with limiting global warming to no more than 1.5°C, we expect investors to support the net-zero transition with historically unprecedented capital flows. We see significant investment opportunities across the global economy, not just in clean technologies and other areas of green infrastructure

In markets where climate policy ambitions are meaningfully stepped up, this should have immediate implications for investment flows. Corporates that are ahead of the climate policy curve today will stand to benefit, and laggards will struggle.

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