It’s certainly true that global greenhouse gas emissions will fall this year as economic activity dives. The International Energy Agency estimates that CO2 emissions from the energy sector will fall by 8% in 2020 – six times greater than the reduction due to the financial global financial crisis – which will take these emissions back to levels last seen in 2010.1
But whilst this effect is dramatic, it won’t bend the curve longer term.
The value of investments and any income derived from them can go down as well as up and investors may not get back the original amount invested.
Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any companies that may be mentioned.
To meet the Paris Agreement goal…a much more significant drop in emissions is needed than what we are currently projected to achieve.
An interesting economic impact of the pandemic worth highlighting is behavioural change, which is the most difficult thing to achieve in economics. We have all changed our behaviour very significantly since the beginning of the pandemic, swapping office time for video calls and cutting down business travel to name just a few transformations in our working lives. Will some of this persist post-crisis? BMO Financial Group’s own CEO Darryl White has spoken of a ‘Workplace 2.0’, where blended home-and-office arrangements become the norm. In the UK, the AA has stated they expect to see a long-term impact on commuting travel, as more people opt to work from home at least some of the time. If such behavioural changes come through, they could be supportive of the transition to a low-carbon global economy.
Our climate change engagement
We set out climate change engagement as our major priority in 2020, details of which can be found here. As coronavirus began spreading across the world, we questioned whether we should divert our wider ESG engagement agenda to focus our efforts on the pandemic. However, we decided to maintain our focus on climate change, while of course remaining sensitive to the current situation. With the pandemic set to last for many months to come, we cannot afford to lose momentum around climate change – in fact, we need to rebuild this momentum up as we head towards the rescheduled COP26 negotiations, whenever they may be.
Our structure towards engaging companies is detailed in our climate change engagement paper. We ultimately expect companies to move from a basic awareness of the issue of climate change and how it relates to their business activities to aligning their business objectives with the Paris Agreement goals. Many companies are already responding with ambitious strategies, including net zero carbon commitments; crucially, whilst we welcome these, we also expect companies to clearly demonstrate their pathway for getting there, by setting out the specific actions they intend to take. When companies do not respond we are willing to use our vote at company AGMs to express our views – as a failure to act on climate change ultimately, we believe, puts companies’ future long-term performance at risk.