Responsible Investment

The climate crisis: Does 2021 bring fresh hope?

Does Joe Biden’s presidential victory bring fresh hope for solving the climate crisis?
February 2021

Vicki Bakhshi

Director, Analyst, Responsible Investment Team

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With a new US President and the Democrats taking narrow control of the Senate, the US political landscape has been completely transformed. One of the issues this will have a major impact on is climate change, with Biden making clear in his inauguration speech that America must respond to a “climate in crisis”.

The dramatic shift in the US position on climate change could be pivotal in the prospects for a successful COP26 negotiation in Glasgow later this year. Originally the meeting would have taken place in November 2020, but was put on hold by the COVID pandemic. Had the negotiations taken place on the original date, it’s almost impossible to imagine them having a successful outcome. The US is a key player in the meeting, but in November was mired in uncertainty and preoccupied with its own domestic challenges. The postponement to November 2021 gives Biden a chance to work on putting his climate pledges into practice, giving the whole event a greater chance of reaching the level of ambition required.

So what are those pledges? Well, mere hours after being sworn in as President, Biden moved to reinstate the US to the Paris climate agreement. Alongside undoing regressive climate-related polices enacted by Trump, Biden has said he wants to adopt a net-zero greenhouse gas emissions 2050 goal, and to decarbonise the power sector by 2035 – the latter no mean feat, bearing in mind coal still makes up almost one-quarter of electricity production, and natural gas a further 38%1.  He has also pledged to revitalise the US’s role in the international negotiations, and has already installed John Kerry, one of the architects of the Paris agreement, as his special climate envoy.

Despite the ‘Blue Wave’ giving Democrats control of the Senate and House, their majorities are slim and Biden will doubtless still face challenges getting some of his domestic legislation through. But the shift in the mood music is unmistakable, and that will have a powerful impact on the international climate talks.

Alongside the seismic shift in the US position, the importance of China’s decision last September to adopt a 2060 net zero goal cannot be overstated – particularly in terms of the impact on the political discussions taking place in other major emerging economies, such as India. Across the rest of Asia we have also seen Japan and South Korea setting net zero emissions objectives. These developments point to a marked shift from the situation only a few months ago, at which stage Europe was the only major economic bloc to have set itself on a net zero pathway.

Will these changes make the Glasgow COP26 negotiations easy? Of course not – there will still be tough discussions to be had. Perhaps the most difficult area is not so much the adoption of long-term net zero goals, but the trajectory from here to 2030. The scientists behind the Intergovernmental Panel on Climate Change (IPCC) have made it clear that to keep our chances alive of limiting the global temperature rise to 1.5 degrees Celcius, global greenhouse emissions need to be cut by 50% by 2030. This is an enormously demanding target which will require brave policy decisions to be taken in the very near term.

A critical factor in building momentum between now and COP26 will be the actions of the private sector. We have seen a growing number of companies take on net zero emissions ambitions – almost 1,400 now globally, according to the UN’s Race to Zero Campaign2. The finance sector plays a pivotal role here. At BMO Global Asset Management, we’ve committed to playing our part both through continuing to engage with investee companies to ask them to adopt ambitious climate strategies, and through our own ambition of net zero emissions across all our investments by 2050.

 

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Disclosures

1https://www.eia.gov/tools/faqs/faq.php?id=427&t=3

2https://unfccc.int/climate-action/race-to-zero-campaign

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

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