Earth Capital Reflections: What COP26 means for investment
Date published: Wednesday, 8 December 2021
In recent months, publications by the IPCC (The Intergovernmental Panel on Climate Change – the United Nations body of scientific experts responsible for assessing the science related to human-induced climate change), the UNEP (The United Nations Environment Programme) and the IEA (International Energy Agency) made clear that the world is currently on a pathway of global temperature rise well above 2°C by 2100. We know from clear scientific evidence that climate change is already taking place, faster and with a more severe impact than we thought on all manner of things from crop yields to company valuations.
The Paris agreement aspiration, that the world should aim to keep the global temperature rise within 1.5 °C, required improved policy commitments to be delivered in Glasgow. Whilst making progress, the Glasgow Climate Pact fell short of delivering commitments that are consistent with our aspiration and ambitions. Estimates of the impact of the aggregate sum of the renewed Nationally Determined Contributions (NDCs) and other policy commitments differ from around 1.8°C to 2.4°C. As Alok Sharma, the UK chair of COP26, sanguinely put it: “1.5°C is within reach, but the pulse is weak.”
Despite this, the Earth Capital team believe that there are some positive takeaways from the otherwise mixed outcomes fromCOP26.
First, we should remember that this is an ongoing process not a final opportunity for action. Glasgow was a staging post and not a “last chance saloon”. It is also increasingly clear which countries and sectors are dragging their feet. Discussions on loss and damage, climate finance, and adaptation are all now focused on solutions. The Rulebook to implement the Paris agreement is now agreed and should provide much needed transparency going forward. We should not underestimate what still needs to be done but momentum has increased after Glasgow.
Next, it important to recognise that the impact of climate change on the real economy is increasingly material and those that fail to appreciate this are now at a competitive disadvantage. The weight of capital behind a host of financial sector Net Zero commitments, including GFANZ (Glasgow Financial Alliance for Net Zero), has transformed the industry into being a critical actor that is now furthering these objectives through its principal function – the allocation of capital. Whilst serious concerns remain around delivery of these commitments and the risk of “greenwashing”, it will be difficult to disregard the influence of these commitments which are becoming embedded in the global financial system.
Private & Public Partnership
Finally, we must be aware that private capital is a key actor in society’s transition to a low carbon economy – governments cannot drive the transition alone. Like many others, Earth Capital has recognised there is a growing moral and business imperative to become part of this process. We are a signatory to the Net Zero Asset Managers Initiative and our sustainability focused portfolio companies are well-positioned to play a critical role in decarbonising critical industries. One of these, SoftIron, makes low energy processing and storage appliances for datacentres, which deliver energy savings of up to 80 per cent. The rapid expansion of the digital economy means that pressure to decarbonise is immense, with the sector now rivalling the airline industry in terms of emissions. SoftIron demonstrates that it makes both business and ecological sense to address this with a combination of innovation and investment.
The ultimate success of the COP process will always depend on what we do next. Opportunities exist across all industries to invest in and reap the rewards of the transition while bringing about the change our planet sorely needs.