Mike Appleby

COP21: What it means going forward and the effects it will have

Mike Appleby

This article was first published by Alliance Trust Investments on 12 March 2016.

Last December world leaders gathered in Paris for the United Nation’s 21st Conference of the Parties and the resulting Paris Accord is the most significant agreement to emerge from any climate conference to date in that it includes the world’s two largest polluters – the US and China – and sets binding carbon emissions targets that will be regularly revised upwards.

Through the Paris Accord more than 190 countries have approved a landmark deal on climate action, agreeing to take the steps necessary to keep global temperatures ‘well below’ 2 degrees above pre-industrial levels and, additionally, to aim for no more than 1.5 degrees. This is the level that most scientists now agree is needed to protect the world’s most vulnerable regions and ecosystems, from the pacific Marshall Islands to coastal regions across North America and Europe.

Renewable energy

Achieving this target will be no easy feat. This is not least as it will require a mass shift away from burning fossil fuels for energy and towards renewable sources such as solar, wind and hydro-power. In order to stay below 2 degrees of warming, the UN suggests that global spending on renewables must more than triple by 2050, increasing by $147 billion (£88 billion) each year, while investment in fossil fuels must decrease by $30 billion a year. By 2050 it estimates that 50 per cent of the world’s energy must be generated by renewables, up from just 17 per cent in 2010 (1).

The International Energy Agency estimates that $13.5 trillion must be invested in renewables and energy efficiency over the next 15 years if countries are to meet their current carbon targets, while a further $3 trillion will be needed to adhere to those agreed in Paris. As recognised by French Foreign Minister Laurant Fabius in Paris, the private sector must play a key role in providing this finance and this makes the renewable sector one of the greatest potential investment growth areas of the next 10 to 20 years1.

Developing economies and infrastructure

In another landmark move, the Paris Accord also secured $100 billion of financing per year to help vulnerable and developing nations adapt to the effects of climate change and support their efforts to mitigate further change by reducing their greenhouse gas emissions. For many of these developing nations – from rising Asian superpower India to the Marshall Islands – it will require a huge investment in infrastructure, transport and housing, creating numerous investment opportunities at home and abroad.

Divestment and good governance

Perhaps most importantly, however, the Paris Accord will change the way that institutions and private individuals invest. While missing a National Determined contribution (NDC) emissions target will not attract a penalty, the transparency required combined with the upward revision of the target every five years should put significant pressure on countries to comply. While the onus will be on governments to meet the NDC’s, achieving these targets will again be dependent on the private sector. 

France recently introduced regulation requiring institutional investors to disclose how their investments align with global warming targets; the sovereign wealth fund of Norway has pledged to divest entirely from coal; South Africa has made sustainable development disclosure mandatory for companies listing on its stock exchange and Brazil’s banking regulations now require companies to account for environmental risk.  The writing appears to be firmly on the wall. 

Post COP21, investors will increasingly look to divest from those companies whose activities could harm the planet and, subsequently, their pension pots – a scenario currently being played out in the oil and gas sector where the reckless expansion of previous years is contributing to steep losses. More and more, public and private investors from across the spectrum will target companies that are talking climate change, making those that don’t risky investments indeed.

Sources

1 http://www.justmeans.com/blogs/investors-integrate-sustainability-into-financial-decision-making

 

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Saturday, March 12, 2016, 12:00 AM