Investing for a carbon free world: Investors support an inclusive transition post COP26

by | Nov 30, 2021

71% of investors felt that richer countries should be helping poorer countries to transition to net zero.

With the UN bringing world leaders together at COP26, the finance sector played an integral role in the discussions for the first time ever, with net zero emissions at the centre of climate talks. In the second instalment of the 2021 Planetary Pulse Survey, Investing for a carbon free world: Investor views following COP26, Ninety One examines what impact COP26 has had on how investors think about their wealth and whether they are prepared to adapt their investment approach to play their part.

In a survey of more than 5,000 investors across five markets, including the UK, Italy, Germany, South Africa and the US, it was found that ESG is a part of many investors’ everyday decisions. In point of fact, 57% of all investors polled have investments with a focus on net zero or other environmental and societal benefits, and the majority of them (67%) are invested in them for five years or more. These investors are committed to long-term environmental and societal benefits, or performance with purpose, with 70% agreeing that they will hold these investments for longer than those without.

Central to the discussions at COP26 was the debate regarding an inclusive net zero transition that is supportive of developing markets. 71% of investors felt that richer countries should be helping poorer countries to transition to net zero, but there is a lack of confidence in the outcomes produced by COP26 given 57% of respondents do not believe they will lead to global climate alignment on tackling climate change.

The lack of high-profile leadership from China and Russia has, according to investors, made it even more difficult to achieve according to 69% of investors, and with little difference in view across markets.

Hendrik du Toit (pictured), Founder and Chief Executive, Ninety One: “There is a sobering and incontrovertible fact about the drive to net zero: any effort that does not work for the world’s 7.9 billion people, most of whom live in emerging markets, will fail everywhere. To really save the planet we must help emerging markets go green. That means robust carbon markets, debt for climate deals and financing options to speed the transition. After all, emerging economies are not responsible for the bulk of emissions to date. Rather, OECD member countries are responsible for three-fifths of cumulative historic emissions. That’s seven times more than the rest of the world on a per capita basis.”

More investors still prefer to follow an inclusive transition approach to achieve net zero emissions instead of simply divesting high-emitting countries and industries. In fact, 45% of all investors prefer for their investments to help companies, sectors and countries transition away from a reliance on carbon, with only 36% supporting divestment. However, these preferences have changed from when similar investors in the same countries were polled ahead of COP26 in our previous report published in October 2021 Investing for a Carbon Free World: What Investors Want, with 55% preferring investment managers use their influence to support a net zero transition and only 30% preferred divestment.

Du Toit continued: “Net zero for some means no net zero at all.  To divest is irresponsible and simply demonstrates a lack of either understanding, awareness or transparency regarding the climate crisis. We must focus on long-term transition plans consistent with net zero by 2050 for companies and countries, not near-term reductions.”

What is clear is that many investors feel that reducing carbon emissions will produce compelling investments, with 40% stating that they are happy for their money to influence decarbonisation while also expecting a competitive financial return. Additionally, in our initial report, 71% of investors preferred active managers for investments that are focused on net zero, environmental and societal benefits. This number rose to 78% amongst those that took an active interest in COP26.

Du Toit concluded: “Although the private sector cannot solely provide the kind of incentives needed, we must drive the early momentum of the intended transition and provide green finance at scale. For governments, policy makers and capital allocators, this is the longer path to take. It is also the right path, and the investment opportunity is in the tens of trillions of dollars. With a fair and inclusive transition, the whole world wins.”

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