Industry Voice: COP26 — key takeaways for investors

New urgency

The Glasgow Climate Pact instilled measured optimism for many in the private sector and government, but disappointed others, including NGOs. The agreement does not seek to keep global warming below 1.5°C, but its commitments to decarbonisation and nature ensure the global economy after COP26 will be significantly different from the one preceding the summit.  

The direction of travel for the global economy through the climate transition is becoming clearer, and the investment risks and opportunities are now beginning to crystalise. To arrive at net zero, the International Energy Agency has projected that annual clean-energy investment needs to increase from USD 1.2 trillion today to USD 4.3 trillion by 2030.

There is now an urgency for the private sector to describe credible transition pathways and roadmaps. The financial sector recognises it must rise to the occasion. Mark Carney is leading a USD 130 trillion alliance within the industry focused on aligning investment portfolios to net zero, recognising the two-way relationship between global warming and the climate transition on the one hand, and portfolio performance on the other.

What's next?

COP26 and the Glasgow Climate Pact form another milestone on a much longer journey. Over the coming 12 months, further progress before reaching the next waypoint at COP27 in Sharm El-Sheikh. Countries are expected to ratchet-up decarbonisation commitments and integrate the many pledges into formal targets: the so-called Nationally Determined Contributions. Our expectation is that this next wave of revisions will bring us closer to the key goal of 1.5°C.

In parallel, notable international summits will take place, such as COP15, the UN Biodiversity Conference at Kunming. It will seek to provide a new framework for the preservation of biodiversity and there are hopes will achieve for nature what the Paris Agreement has for climate change. 

Beyond global diplomacy, GFANZ will rally private finance for the net-zero transition. Member institutions are expected to define and begin implementing specific targets, while adopting and promoting temperature-alignment metrics for investment portfolios. A key challenge will be to look past sectors already on track for net zero and seek accelerated emission reductions in the majority of the economy, while mobilising financing to scale-up green technologies.

Indisputably, the ambition of climate pledges and commitments increased at COP26, but the hard work of implementation remains. Under the frameworks of the pact and separate initiatives announced at the summit, market forces, innovation pathways and creative destruction will drive decarbonisation in the real economy. However, leeway in the various agreements leaves room for interpretation, and there is always the risk that countries may seek to backtrack.

Ultimately, however, it is undeniable that the transition to a lower carbon economy is not only an environmental but an economic imperative. As the cost of green technologies fall and economies of scale improve, enthusiasm is likely to grow. This, at least, is the spirit of the ratcheting mechanism. COP26 has demonstrated that this process may be slow - but it is moving, at last.

To find out more about the seven key outcomes of COP26 from an investor's perspective please click here.

This post was funded by Lombard Investment Mangers

important information.

This document has been issued by Lombard Odier Funds (Europe) S.A. a Luxembourg based public limited company (SA), having its registered office at 291, route d'Arlon, 1150 Luxembourg, authorised and regulated by the CSSF as a Management Company within the meaning of EU Directive 2009/65/EC, as amended; and within the meaning of the EU Directive 2011/61/EU on Alternative Investment Fund Managers (AIFMD). The purpose of the Management Company is the creation, promotion, administration, management and the marketing of Luxembourg and foreign UCITS, alternative investment funds ("AIFs") and other regulated funds, collective investment vehicles or other investment vehicles, as well as the offering of portfolio management and investment advisory services.
Lombard Odier Investment Managers ("LOIM") is a trade name.
This document is provided for information purposes only and does not constitute an offer or a recommendation to purchase or sell any security or service. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful. This material does not contain personalized recommendations or advice and is not intended to substitute any professional advice on investment in financial products. Before entering into any transaction, an investor should consider carefully the suitability of a transaction to his/her particular circumstances and, where necessary, obtain independent professional advice in respect of risks, as well as any legal, regulatory, credit, tax, and accounting consequences. This document is the property of LOIM and is addressed to its recipient exclusively for their personal use. It may not be reproduced (in whole or in part), transmitted, modified, or used for any other purpose without the prior written permission of LOIM. This material contains the opinions of LOIM, as at the date of issue.
Neither this document  nor any copy thereof may be sent, taken into, or distributed in the United States of America, any of its territories or possessions or areas subject to its jurisdiction, or to or for the benefit of a United States Person. For this purpose, the term "United States Person" shall mean any citizen, national or resident of the United States of America, partnership organized or existing in any state, territory or possession of the United States of America, a corporation organized under the laws of the United States or of any state, territory or possession thereof, or any estate or trust that is subject to United States Federal income tax regardless of the source of its income.
Source of the figures: Unless otherwise stated, figures are prepared by LOIM.
Although certain information has been obtained from public sources believed to be reliable, without independent verification, we cannot guarantee its accuracy or the completeness of all information available from public sources.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by LOIM to buy, sell or hold any security. Views and opinions are current as of the date of this presentation and may be subject to change. They should not be construed as investment advice.
No part of this material may be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorised agent of the recipient, without Lombard Odier Funds (Europe) S.A prior consent. In Luxembourg, this material is a marketing material and has been approved by Lombard Odier Funds (Europe) S.A. which is authorized and regulated by the CSSF.
©2021 Lombard Odier IM. All rights reserved.