COP26: ESG and Climate Change Capture the Market’s Attention

In early November, we saw world leaders gather in Glasgow for the COP26 conference to discuss climate change and create proposals for tackling climate change. As widely expected, the conference has not (yet) yielded any dramatic breakthroughs against its primary goal of keeping global emissions on a 1.5°C pathway. According to the influential Climate Action Tracker, based on targets that countries have put forward for 2030, the world is on track for a forecasted temperature increase of 2.4°C by the end of the century.

While the conference did not yield any dramatic breakthroughs, it has delivered several important side-agreements over the past two weeks, including the Global Methane Pledge, a commitment by over 40 countries to phase out their coal-fired power plants and, most critically in our view, a surprise joint declaration by the US and China to cooperate on achieving reductions in greenhouse gas (GHG) emissions this decade.
 
The fundamental hurdle to globally tackling climate change is that countries have sharply divergent views on many underlying issues, including climate finance (e.g. how much climate financing developed countries should provide to developing countries), how and whether GHG emissions should be priced and, most importantly, timelines for decarbonization.
 
One of the main talking points coming out of the conference has been a continued push towards more ESG investments and pledges by companies to do their part in helping with climate change. Coming out of COP26 we expect to see investors double down on their climate change ambitions, and we think companies will need to respond with credible short- and long-term decarbonization plans to remain competitive over the long run as investors are increasingly likely to support reasonable shareholder proposals on climate change. Companies without a credible climate change plan could struggle to attract long-term shareholders.

The team at Net Zero has created a great website, https://www.zerotracker.net/, which highlights which countries and companies, have implemented climate mitigation strategies. This includes summarizing the strategies of the companies in the Forbes 2000 list of the largest publicly-traded companies in the world. We are very happy to announce that a significant number of our portfolio companies are on this list.
 
This year, we have seen many companies in the energy and petrochemical sector pledge to significantly decrease their emission targets. While global oil demand is expected to continue to increase over the rest of this decade, these pledges and increased awareness, by both state and corporate actors, look to create a united front for the global goal of tackling climate change. It is getting harder and harder for companies to turn a blind eye to climate change as they plan their future corporate strategy. Companies that are underperforming and do not have a credible climate change plan will be negatively affected by the markets. It is no longer novel to have climate change policies, but rather expected. This strategy aligns with our belief in sustainable investing, a form of investing that can powerfully push forward global climate change goals by supporting companies that are planning for a more sustainable future. We believe it is an ethical and responsible way to invest in your future.