BlueBay ESG investor My-Linh Ngo says what governments and COP26 must deliver on in order to confront the environmental emergency.
As world leaders prepare to convene in Glasgow in just a matter of weeks, there is a weight of expectation on them all to leave the COP26 summit with a clear plan on how to tackle the pressing climate issues that threaten our planet, and our current way of life. There has been much talk but now is the time for global action.
One of the biggest challenges to addressing climate change is the lack of partnerships and collaborations. No single party can stop climate change, so collective action is required. Multi-stakeholder efforts need to be scaled up and co-ordinated to reinforce efforts. In this regard, the COP26 UN climate talks are the most important in six years and are the best chance for governments to inspire and enable global collaboration efforts with ambitious binding commitments.
There has been much talk and some planning about what policies are needed in the wake of COP26. But what we really need is for these to be turned into action. We need collective and co-ordinated implementation, which is commensurate to the threat and urgency of the climate challenge. This is a pivotal year in a decisive decade to deliver net zero and achieve inclusive growth and a just transition. There are some encouraging signs of progress and momentum, but this is not being delivered at the speed and scale needed globally.
Carbon pricing
There are several key areas that governments need to focus on at November’s conference, and beyond, one of which is scaling up their carbon ambitions. This means strengthening their plans to cut carbon emissions, as well as adopt aggressive targets for net zero by 2050 or sooner. But in order to drive these changes certain global mechanisms need to be in place. Most notably on carbon pricing, the global trading of carbon credits, and non-market approaches for international climate cooperation. However, speed is of the essence to avoid a significantly disruptive and disorderly transition, which is in no one’s interest, least of all the investment community as it leaves it exposed to significant risks. The finance community needs certainty on the direction of policy so it can plan and invest accordingly.
And the investment community’s input is essential to make these changes. Governments need to work cooperatively with the investors to develop innovative climate finance solutions. Public finance alone cannot fund the needed transition. Particularly, funding needs to be directed to emerging markets, which are the most vulnerable, to help them mitigate impacts and build resilience.
A failure to close the significant funding gap to emerging markets risks a messy transition and represents another key challenge in the fight against climate change. The climate transition is a global issue which requires a global solution, and as such, it is clear that efforts need to be made to ensure that developing nations are not left behind. Groups such as The Emerging Markets Investors Alliance (which we are a member of) is an important industry initiative looking to directly address this, and BlueBay Asset Management is active in workstreams on the climate transition.
The ‘just’ transition
Another area to highlight relates to the role of governments in ensuring the carbon transition is ‘just’. This means they need to develop policies and regulations which enable, promote and do not undermine the efforts of other stakeholders such as civil society or the private sector, for a ‘just’ transition. They have a responsibility to establish a minimum safety net and build social resilience/adaptiveness to prevent people being stranded by the low carbon transition. Governments also need to ensure the prosperity that results is shared.
The Covid pandemic has shown us how unsustainable practices are having real world negative impacts, but also how, united, we can bring about the action needed to manage crises. It also highlights, beyond the risks, there are opportunities to ‘build back better’. All of these messages are relevant to the climate crisis.
Whilst we want to be hopeful and optimistic, and note the growing momentum, we recognise the overwhelming challenges to finding the scale and speed of the transformational policies we need ahead of COP26. Climate change is not seen to have the same immediate impact as Covid, despite the recent heatwave witnessed in North America, and the rains in northern Europe. We are unlikely to see the government leadership we need, but we hope we are proven wrong, because the window to act is closing. The stakes are too high to hope otherwise.
*My-Linh Ngo is head of ESG investing & a portfolio manager at BlueBay Asset Management.
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