Premier Miton Global Sustainable Growth Fund Manager
Adapt or mitigate?
It looks like we are not on track to prevent climate warming occurring over the next century. As a result, we need to focus our plans for living on a warmer planet by switching financing efforts towards climate adaption, rather than mitigation.
Increasing the focus on climate adaptation highlights risks such as the increased likelihood of flooding and extreme heat events. These extreme climate events drive out the requirement for capital investment in the built environment such as infrastructure projects and building retrofits. These challenges also extend into the agriculture sector, where naturally there will be both winners and losers from climate changes.
Loss and damage
‘Loss and damage’ are on the COP27 agenda. This is a UN related concept where the richer, more developed countries are asked to provide support to countries who are directly impacted by climate change. This would cover low lying island states like Haiti and Kiribati and those most at risk from drier, warmer climates such as Yemen and the better economically positioned UAE. The concept being built on here is a ‘just transition’ that is fair for all communities globally.
With COP27 being hosted in the African continent for the first time in six years, the target to provide $100bn of climate finance to the developing world has never been fully delivered and quite rightly should be highlighted by the hosts. A key challenge that will be tabled is how the scale of climate-related investment that Africa needs will be funded. This capital investment is required across sectors including infrastructure, education and lines of finance for businesses. The debate here will centre around what role for development banks, such as the World Bank, can play here.
The Paris climate agreement
The Paris agreement is a legally binding agreement on climate change, it was adopted by 196 parties at COP21 in Paris and the outcome was an agreement for these counties to review and strengthen their climate plans.
The reality is this agreement has not been acted on, with just 22 countries revising their plans, Australia particularly standing out for making meaningful changes. The Australian Government has introduced the Climate Change Bill 2022. The bill legislates the nation’s commitment to reduce greenhouse gas emissions by 43% below 2005 levels by 2030 and net zero by 2050.
When we look at the private sector though, globally more companies are committing to net zero and carbon emissions targets. This trend is an important demonstration of company’s managing and reducing climate risk across their businesses, as well as responding to increased awareness and pressure from their own shareholders. The existence of these targets is often the result of long engagement projects, such as Climate Action 100+. Climate Action 100+ is an investor-led initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
Shifts in the geo-political landscape
The Russian invasion of Ukraine has led to huge increases in fossil fuel prices with oil (WTI Crude) moving to over $100 per barrel in 2022. Alongside this Europe has made a clear commitment to end the imports of gas and in the US the Inflation Reduction Act has reduced the costs of green energy infrastructure investment.
In both Europe and the US, governments are looking to accelerate the transition to green energy, having moved wind and solar power from nascent and expensive a decade ago to mainstream and low cost today. These government actions will have a significant impact on the landscape for renewable energy with a focus on developing and rolling out innovation across batteries, hydrogen and electricity grids.
Reasons to be positive
Globally we may not be on track for a material reduction of carbon emission, but we must celebrate the progress that has been made.
We have seen the expansion of renewable energy capacity, the popularity of electric vehicles and development of recycling of materials such as batteries. With global regulatory support for implementation of climate risk reporting, we are seeing an increase in non-financial corporate reporting across the supply chain and a significant number of net zero carbon commitments by companies demonstrating that we are making progress.
At COP27 in Egypt we hope to see positive talks backed up by positive actions.