Investors already looking beyond COP26

The highly anticipated COP26 summit is seen as a critical opportunity for policymakers to set out clear plans to lower global emissions and reach net zero by 2050. As the world awaits tangible policy developments, Stephanie Maier, GAM Investments’ Global Head of Sustainable and Impact Investment, says the global fight against climate change is continuing to gain momentum and the financial infrastructure of a new and sustainable economy is falling into place.

29 October 2021

Climate change poses a significant systemic risk to our planet and the wider financial ecosystem. It is therefore vital that opportunities presented by the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow are grasped by both policymakers and the financial sector in order to deliver meaningful change. Progress in the months preceding COP26 has been promising, but only globally ratified agreements on contributions to limit climate change will lead to tangible developments. In practice, this will mean setting net zero targets at a national and sector level, and emphasis being placed on ‘greening finance’ alongside ‘financing green’, with investors encouraging their holdings to provide detailed outlines on how they plan to cut their emissions.

An encouraging run-in

COP26 is critical because it marks the moment when the original emissions reduction plans set by each country in 2015 are ratcheted up to a level that will actually keep global warming to two degrees Celsius or below. We have seen strong momentum in the build-up to the summit. China has announced a landmark ban on the funding of coal-fired power stations overseas, while US President Joe Biden has promised to double the money the US will spend to fight climate change. In the capital markets, asset managers managing almost half of global assets, including GAM, have signed up to the Net Zero Asset Managers initiative, pledging to become net zero investors by 2050.

It is vital, in our view, that policymakers respond to this clear signal from the markets with strong internationally-applicable policies that foster further ambition, and crucially implementation of these ambitions. The UK published two important papers in October – the Net Zero Strategy and its Roadmap to Sustainable Investing. While these reports alone are not enough to put us on track for net zero by 2050, they do provide welcome granularity and further indication of the direction of travel. No doubt more is required to enable us to move further and faster, but we have stronger foundations to build on than before. We believe plans also need to enable a ‘just transition’ – one which considers the poorer nations at the table whose needs have historically been side-lined to give preference to global economic heavyweights.

Post-COP26 architecture starting to form

Encouragingly, investors are starting to see critical pieces of post-COP26 financial infrastructure fall into place. Investors involved with Climate Action 100+ – an investor-led initiative to ensure the world's largest corporate greenhouse gas emitters take necessary action on climate change – have shared expectations for what net zero food, steel and power sectors will look like. From January, the Transition Pathway Initiative (TPI) – a global, asset-owner led initiative which assesses companies' preparedness for the transition to a low carbon economy – is also set to provide free robust climate data on over 10,000 major companies, as well as on sovereign and corporate debt providers. These developments show the contours of the new economy. We are likely to see further support for mandatory climate risk disclosures, in line with Task Force on Climate-related Financial Disclosures (TCFD). Such changes should enable us to help our clients manage the transition and seize opportunities through solutions, such as GAM Investments’ recently launched Sustainable Climate Bond Strategy. The world has high hopes for COP26, and we will watch negotiations closely to see how they accelerate the transition already under way.

 

Important legal information
The information in this document is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained in this document may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information. Past performance is not a reliable indicator of future results or current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented and are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. There is no guarantee that forecasts will be realised.

Stephanie Maier

Global Head of Sustainable and Impact Investment
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