Nations around the globe discussed action on climate change and more than 200 signed the new Glasgow Climate Pact, which renewed their commitment to fighting climate change. Here’s a summary of what did—and didn’t— happen so savvy investors can monitor commitments and understand what may impact the long-term performance of their responsible investing portfolios.
What did happen
The International Finance Reporting Standards (IFRS) board announced a new International Sustainability Standards Board1, which will develop accounting standards for companies around the globe when announcing ESG disclosures—specifically, what data needs to be disclosed and what the measurements will be. This is a huge step toward much-needed consensus around ESG data.
Financial institutions (banks, insurers and investors) representing US$130 trillion in capital pledged to transform the economy to net-zero
- An agreement was made on Article 6 of the Paris Agreement, eliminating double counting on carbon credits. This eliminates a country undergoing a project that reduces its emissions (counting as one credit), but then also turning around and selling said credit on the market (counting as one credit by a second country). Now the UN will authorize a country’s voluntary emissions reductions. This makes the responsible investing market more transparent.
What didn’t happen
Coal survived. There was speculation there would be an agreement to completely phase out coal, but the final language was changed to “phase down” coal. China and India fought the phase-out language because they both have substantial coal reserves and very little alternative without significant aid from developed worlds.
Developed nations failed to live up to their 12-year pledge of a US$100 billion fund to aid developing nations.4 As of the start of this year’s conference, only US$80 billion had been put into the fund. The U.S. in particular is lagging in its contribution. Even further, the UN estimates that developing nations will need cumulatively US$70 billion a year to finance adaptions to climate change, with the number doubling by 2030.
What’s in it for investors
The responsible investing world will keep an eye on if the development of alternative fuel technology industries moves at pace with, faster than or slower than the COP26 projected phase down of coal. In its October SusTech series, the RBC Global Portfolio Advisory Committee reported GreenTech stocks had strong gains in 2020, but experienced volatility in early 2021, potentially providing investors a good opportunity to build exposure to GreenTech for a long-term investment. We also think the IRFS’ International Sustainability Standards Board addresses one of the ESG data reporting issues investors were facing. As this standards board gets established, we think investors will have an easier time evaluating both their investments and the impact those investments are making.
In addition, the increased transparency for carbon credits should make it easier for countries and companies to achieve net zero commitments. For more background information about putting a price on carbon emissions, read the November Global Insight published by the RBC Global Portfolio Advisory Committee.
In summary, the ESG investing world was rapidly changing prior to the COP26 conference, and it doesn’t show any signs of slowing down in changing for investors in the near future.