global perspectives
‘Coal, cars, cash and trees’: what progress has COP26 made so far?
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Under the spotlight – and the weight of the world
In full COP26 limelight, political leaders used pop culture to seize attention and headlines in their opening speeches.
UN Secretary-General António Guterres exhorted: “Choose ambition. Choose solidarity. Choose to safeguard our future and save humanity” and not, similar to Mark Renton in Trainspotting, the “something else” of fossil-fuel addiction. UK Prime Minister Boris Johnson urged participants to be like James Bond and stop the climate-change “doomsday device”.
After this tribute to COP26 host nation’s film industry, aspirational pledges and critical speeches followed. Johnson had promised that targets for four key dimensions of the climate transition would be set: “coal, cars, cash and trees”. This slogan partially reflects the agenda of the summit. In this insight, we ask: what has been achieved in its name so far?
Led by the UK, the Powering Past Coal alliance – comprising countries, cities, regions and organisations – announced its goal to phase out coal production in the 2030s among major economies and in the 2040s for poorer nations. The group also aims to end all investment in new coal-power generation capacity domestically and internationally, and phase out coal globally by 2050.
Because more than 40 countries have signed the pact – including heavy coal users Poland, Indonesia, and Vietnam – the initiative could phase out 40GW of coal power across 20 countries. But the alliance needs more power: the economies most reliant on coal – Australia, India and China – opted out, as did the US.
In monetary terms, over USD 20 billion will be made available to support this phasing-out activity, including USD 10 billion in philanthropy-led financing for clean-technology deployment in developing countries. There is also USD 8.5 billion allocated for the South Africa Just Energy Transition Partnership, a multilateral effort that could serve as a model for other developing nations to ditch fossil-fuel use.
Elsewhere, the Asian Development Bank is launching a USD 2.5 billion pilot fund to purchase coal power plants in Indonesia, the Philippines and Vietnam, in order to shutter them earlier than planned with low-cost financing. But critics are worried that the acquisitions could unintentionally incentivise some coal producers to open or expand facilities in order to be bought out.
Launched in April and promoted at COP26, the Glasgow Financial Alliance for Net Zero (GFANZ) sees 450 banks, insurers and asset managers across 45 countries with total assets of USD 130 trillion aiming to lower portfolio emissions to net zero. This includes highly diversified portfolios, in which alliance members will also engage investee companies to encourage rapid emission reductions to hit net zero by 20501. However, the trillions committed to GFANZ is subject to double counting among the holdings of asset owners and the fund managers who invest for them, and should be interpreted with care.
Neither does GFANZ represent investment in new climate solutions, which would account for a far smaller share of assets. The International Energy Agency (IEA) has estimated that by 2030, nearly USD 5 trillion in annual investment will be required in the energy system alone – including the expansion of renewable-energy capacity and the transformation of transport, industry and buildings. While GFANZ does not bridge this gap, it is still indicative of the finance industry’s growing recognition that the transitional, physical and liability risks and opportunities inherent in the climate transition are material for investors.
Separately, the 2015 Paris Agreement promised USD 100 billion per year of climate finance from developed countries to the global south by 2020. Six years later, the target was resoundingly missed then delayed for up to three years, much to the chagrin of the developing countries. Understandably, despite the progress in many parts COP26, leaders of developing nations have focused on this inaction: "Before making new pledges, start by fulfilling the existing ones," Kenya's President, Uhuru Kenyatta, said.
To emphasise their plight, emerging economies have now boosted their climate-finance request to USD 1.3 trillion a year, which is more than tenfold the amount that the developed nations are still struggling to meet. This will be a sticking point in the coming week of COP negotiations.
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1 Lombard Odier Investment Managers is a signatory of the Net Zero Asset Managers Initiative, which is part of GFANZ.
Deforestation has long been a knotted issue. Forests are rich in biodiversity and act as natural carbon sinks, but clearing them for wood-based products or agriculture is seen by some as vital to local communities’ livelihoods and countries’ economic development.
At COP26, 110 countries including Canada, Brazil, Russia, China and Indonesia – together holding more than 85% of global forests – pledged to halt and reverse forest loss and land degradation by 2030. This commitment is effectively a relaunch of the 2014 New York Declaration on Forests and should fare better owing to three new branches:
- USD 12 billion in overseas development financing to help nations protect and restore their forests, alongside a further USD 1.7 billion from governments and philanthropic groups to support indigenous communities’ rights of tenure.
- Launched at COP26, the new Forests, Agriculture and Commodity Trade initiative sees 28 governments – representing 75% of global trade in key commodities that can threaten forests – committed to sustainable business that reduces pressure on forests. This also includes support for smallholder farmers and improving supply-chain transparency.
- The support of 30 financial institutions – including Lombard Odier – with total assets of USD 8.7 trillion seeking to identify and eliminate investment in activities linked to deforestation. This, in turns, seeks to reduce misbehaving firms’ access to capital and to consumer markets.
Critics have questioned the credibility of governments in some of the countries most exposed to deforestation, and other challenges remain – on accounting processes, verification and data availability. Despite this, the revitalised pledge could spur the voluntary carbon offset market: avoided deforestation, reforestation, afforestation and more sustainable forest management may be one of the lowest cost, highest impact levers available to the economy to accelerate the transition to a net zero and more nature-positive economy.
Four-wheel vehicles have not been prominent at COP26 so far. But it is understood that COP26 President Alok Sharma will seek a pledge to end the sale of new petrol and diesel vehicles by 2035, which resembles the current UK commitment.
On clean technology, Bill Gates’s Breakthrough Energy is busy partnering with global governments under its Catalyst programme to deploy and commercialise clean technologies, including: hydrogen power, carbon capture and storage, sustainable aviation fuels and long-duration energy storage.
So far, it has secured a draft agreement with the European Commission and European Investment Bank to deploy USD 1 billion between 2022-2026, and various collaborations with the US Department of Energy, the UK government, and the World Economic Forum. Catalyst signals Gates’s intent to help accelerate the race to net zero and gain a substantial foothold in the post-transition economy, while leveraging public resources.
Separate to Gates’s programme, Glasgow Breakthroughs commits 40 countries to multiple Paris Agreement-aligned goals by 2030: to make renewable power the cheapest form of energy across many regions, zero-emission vehicles the norm, near-zero-emission steel the preferred choice in the market and the global provision of affordable green-hydrogen power.
For our climate, pledges are not enough
Before political leaders met in Glasgow, 80% of the global economy was committed to or considering net-zero targets. At the summit, climate pledges have become more ambitious. The IEA has given its verdict: if these pledges are implemented and achieved in time, global warming would be restrained to 1.8°C – an immense reduction from the pre-COP26 projection of 2.7°C.
This is a cause for optimism, as it is the first time humanity’s combined pledges have aligned with warming of less than 2°C since the climate movement began. In this light, the major COP26 objectives have been achieved: escalating the COP21 Paris Agreement for a climate-change threshold of 2°C and stretching for the more ambitious goal of below 1.5°C.
But actions will speak louder than these words.
Pledges must be kept from collapsing into broken dreams, and the fine lettering of agreements is yet to be finalised, loopholes closed and a common accounting system established to track progress. COP26 has been described as the last chance to keep warming of 1.5°C alive. Another week of negotiations could reveal whether we have seized or scrapped this chance.
No matter the outcome, we must confront the consequences of the global climate transition.
Last week, Lombard Odier hosted the Zero-Hour Sessions in Glasgow during the first week of COP26. To watch presentations about investing with a focus on net zero, nature and planetary boundaries, click here.
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