Cutting through the ‘blah blah blah’ – key COP26 highlights for investors
As the second and final week of COP26 draws to a close, attention is focused on the outcome of the negotiations that have been ongoing throughout the fortnight. An updated draft version of the text, which will form the basis for an agreement between all countries participating, calls for more ambitious carbon reduction plans by 2022, an increase in climate finance beyond USD 100 billion a year – particularly in support of developing countries – and accelerating the phase-out of unabated coal and fossil fuel subsidies. However, discussions are ongoing, and details are likely to change before the final agreement is signed, most likely on Saturday 13 November.
In the meantime, it has been a particularly busy couple of weeks for climate-related discussions, commitments and announcements coming out of the wider programme of events and activities. This has most recently culminated in an unexpected climate cooperation declaration between the world’s two biggest CO2 emitters – the US and China – which calls for increased efforts to close the ‘significant gap’ that stands in the way of achieving the goals of the Paris Agreement.
Elsewhere, there have been notable pledges made in relation to everything from net zero alignment to coal phase out and limits on methane. Read on for a day-by-day summary of the highlights so far.
World Leaders’ Summit
On 1 and 2 November, over 100 world leaders met in Glasgow as COP26 opened to discuss the urgent action required to accelerate progress in tackling climate change. Leaders outlined national targets to reduce emissions and explained steps they are taking to deliver on their commitments, including action on coal, vehicles, finance and nature.
Over 40 leaders representing more than 70% of the world’s economy, including the US, India, EU, China and developing economies, signed up to the new Breakthrough Agenda which will see countries and businesses collaborate and strengthen their action to tackle climate change. The first five goals collectively cover more than half of global emissions across key areas including power, road transport, steel, hydrogen and agriculture.
More than 100 countries, representing around 85% of the world’s forests, pledged to halt deforestation by 2030. Supported by nearly USD 20 billion in public and private funding, the pledge intends to reverse damage to forests and surrounding land. A similar number of countries also signed a pledge to reduce methane emissions by at least 30% in the next decade. 11 of the 20 highest methane producing companies have signed the pledge, although China, Russia and India are yet to do so.
Throughout the two days, it was clear that funding for the transition is continuing to increase but is still well short of the levels required, particularly in emerging markets and developing countries. Leaders called for the global financial system to build on recent efforts to support a resilient and sustainable recovery from Covid-19 and increase investment for clean, green infrastructure.
Off the back of the World Leaders Summit and with a number of countries having made commitments to increase financial support for developing countries, attention turned to the private sector and the need to leverage trillions of dollars of private finance for a net zero future. In that context, GFANZ announced that they had calculated that commitments to align with net zero across various financial alliances and initiatives – including the IIGCC-backed Net Zero Asset Managers initiative and Paris Aligned Asset Owners group – had reached USD 130 trillion. The UK government also announced plans to mandate net zero transition plans for financial institutions and listed companies and a new sustainability standards board was announced by IFRS. In addition, the FCA published its ESG strategy and IOSCO published its final report setting out recommendations to avoid greenwashing.
For more information on announcements from Finance Day, read our full summary.
Energy Day kicked off with COP26 hosts echoing UN Secretary-General António Guterres’ call to “consign coal to history”, and Conference President Alok Sharma announcing a new Global Clean Power Transition Statement to end coal investment.
Elsewhere, a 190-strong coalition of countries and companies agreed to phase out coal power and end support for new plants, with at least 23 countries making new commitments, including five of the top 20 coal power-using countries. Countries also committed to scaling up clean power and ensuring a just transition away from coal, while financial institutions made landmark commitments to stop funding unabated coal. 28 new members also signed up to the Powering Past Coal Alliance, joining more than 160 existing signatories. These moves are collectively expected to transition approximately USD 17.8 billion a year in funding from fossil fuels towards the clean energy transition.
Separately, several major emerging market economies, including India, Indonesia, the Philippines and South Africa, took steps forward in the transition from coal to clean power, announcing significant partnerships to support early retirement of coal plants. These followed announcements at the World Leader’s Summit earlier in the week to ensure a just transition to clean energy in South Africa.
Nature and Land Use
45 governments committed to taking urgent action to protect nature, halting and reversing its decline by 2030 and making changes to deliver a food system that supports farmers while remaining low-carbon and deforestation free. National commitments include low carbon farming programmes and lowering emissions from land use as well as funding the implementation of measures to protect forests and support a just rural transition.
Over 150 organisations committed to leverage more than USD 4 billion of public funding to support innovations in the agriculture sector, including climate-resilient crops, digital technologies and solutions to improve the quality of soil. In addition, 95 UK businesses made a joint commitment, coordinated by the UNFCCC and UK’s COP26 unit, to target net nature positivity across their operations by 2030.
Adaptation, Loss and Damage
The second week of COP26 began with a day focused on adaptation, loss and damage, with some notable commitments from the public and private sectors following the significant adaptation gap report published the previous week.
The Race to Resilience campaign brought together a number of initiatives to strengthen resilience of urban, coastal and rural communities, benefitting 2 billion people around the world. USD 232 million was committed to the Adaptation Fund – more than double the previous highest collective mobilisation, with commitments coming from the UK, US, Canada, Sweden, Finland, Ireland, Germany, Norway, Qatar, Spain and Switzerland. In addition, the UK announced £290 million in funding for adaptation, including the Climate Action for Resilient Asia programme.
Road transport is responsible for 10% of emissions globally and is rising at a faster rate than those of any other area. Against that backdrop, while the shift to zero emissions vehicles (ZEVs) is already underway, there is a pressing need for it to accelerate dramatically and expand to cover not just cars but vans, buses, truck and lorries. The focus of Transport Day was very much on the movement towards ZEVs, with a number of key declarations, commitments and pledges made.
As part of the Breakthrough Agenda, an agreement was reached between 30 countries, including a number of emerging markets such as Kenya, India and Rwanda, to work together to make zero emission vehicles more accessible, affordable and sustainable in all regions by 2030 or sooner. A World Bank trust fund was announced that will mobilise USD 200 million over the next decade to decarbonise emerging market road transport. 19 governments also set out intentions to establish ‘green shipping corridors’ to allow for zero emission shipping on key routes globally and the UK has pledged to end the sale of new diesel trucks by 2040.
In addition, the Climate Group’s RouteZero campaign brought together commitments from policymakers, auto manufacturers and other stakeholders to shift towards 100% ZEV adoption by the end of the 2030s.
COP26 has succeeded in catalysing a broad range of ambitious commitments across constituencies, sectors and national jurisdictions, setting net zero as the new benchmark for climate ambition. However, two broad issues remain:
- While significant progress has been made with the new and updated emissions reduction pledges that were announced at COP, initial assessments by the IEA put the total level of ambition at roughly 1.8°C – i.e. still short of the 1.5°C target that scientists now agree is the minimum needed to avoid catastrophic climate change. This is a big step forward from the 2.1°C of warming that pre-COP26 contributions represented, but there is still more needed.
- As ever with commitments made in principle, with little to no legal force to back them up, the effectiveness of these new pledges rests entirely on their full and proper implementation. Such implementation will need to be easily tracked and measured to ensure that all actors are held to account, and that the gap to 1.5°C can continue to be fully understood.
As such, the role for IIGCC and our members remains as critical as ever. We will continue to collaborate across the investment sector to translate commitments into action, supporting investors in delivering on their own commitments and engaging with investee companies to accelerate progress towards net zero, as well as advocating for a supportive policy environment that will facilitate change.