As the world continues to emerge from the pandemic, although other headwinds exist, governments, businesses and the financial world are refocusing on what the Principles for Responsible Investment (PRI) describe as ‘the greatest threat to the wellbeing of humanity and to the ecosystems on which we depend’ – climate change.
According to the PRI, a United Nations-supported initiative, many are now recognising ‘the enormous opportunity for economic growth and investment returns presented by the transition to net-zero emissions.’ The PRI reflect a firm belief that ‘the financial sector and the investment community will play a central role in the global response to climate change and supporting the transition to a net-zero economy.’
A year after the United Nations 26th Conference of the Parties, on British shores, the upcoming COP27 climate conference is taking place in Sharm El-Sheikh, Egypt this November. Last year, delegates from almost 200 countries agreed upon the Glasgow Climate Pact at COP26, which builds upon targets set out in the Paris Agreement, an international legally binding treaty intended to limit global warming to 1.5 degrees Celsius. Key pledges made by governments last year included commitments to end deforestation, cut global methane emissions and to transition to zero-emission vehicles. Countries were asked to return to this year’s conference with a plan to strengthen their 2030 commitments.
“A decisive decade for climate action”
Mahmoud Mohieldin, the UN climate change high-level champion for Egypt, hopes the 2022 conference will be an important milestone in what he calls “a decisive decade for climate action.” In his view, COP27 should undertake an “urgent, ambitious, impactful, and transformative agenda, guided by a holistic approach to sustainable development,” based upon the principle of equity and informed by science.
“In light of the goals and objectives… we will promote a stronger focus on implementation, transforming commitments into actions and translating the pledges of the summits into solutions in the field,” he continued, “While acknowledging the complexities of the different political, economic and developmental challenges, it is incumbent on us all to raise the threshold of action at COP27.”
Climate change for investors
COP27 will undoubtedly be of interest to investors engaged with climate change, with key announcements potentially impacting their portfolios. Investment decisions have a role to play, and the investment industry continues to play a pivotal role in the global climate transition. One investor initiative – The Net Zero Asset Managers Initiative – has now grown to over 270 investor signatories with over $60trn assets under management – all committed to supporting the goal to reach net zero and investments aligned with net zero emissions.
COP provides an opportunity for institutional investors to consider how they can innovate in developing solutions to solve climate issues and in financing sector transition. PRI deduce that, ‘Investors increasingly recognise the threat posed by climate change to the global economy, and therefore to their ability to meet the needs of their beneficiaries over the decades to come… They understand the imperative to engage with the companies in which they invest, and the policymakers who write the laws, to ensure that both groups respond appropriately to the threats and opportunities involved.’
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.