COP26 – Reflections from Glasgow

Members of our Responsible Investment team were in Glasgow to contribute to the investor voice at COP26. Did the climate summit deliver on its promise?
November 2021
Vicki Bakhshi

Vicki Bakhshi

Director, Analyst, Responsible Investment Team

The overriding aim of the COP26 summit was to ‘keep 1.5 alive’, by ratcheting up signatories’ commitments to the Paris Agreement in line with the latest scientific evidence on the emissions cuts required globally. The full impact of COP26, though, can only be assessed by looking not just at what was in the Glasgow Pact itself, but also at wider actions by governments, business and investors for which the meeting provided a catalyst. Overall, taking this broader perspective, we believe that whilst the meeting did not close the gap to 1.5 degrees, it did mark significant progress in the efforts to tackle climate change.

Ahead of the COP26 climate summit, we set out our predictions on what the outcomes would be. Broadly the meeting evolved as we expected – but with a few surprises.

Close the gap to 1.5 degrees

Alpine glacier

Our prediction: Some increase in ambition likely, but pledges will fall well short of what is needed to close the gap

Outcome: In line with our prediction

Despite the rhetoric, COP26 was never likely to result in a deal that fully closed the gap to 1.5 degrees. Well ahead of the meeting, we knew the positions of the major players, who had submitted their updated targets (Nationally Determined Contributions, or NDCs) in advance.

There was some hope that China might increase its ambition. This did not materialise, and the world’s largest emitter was notably quiet during the whole process – but a bilateral pact with the US surprised and raised some hopes of increased ambition to come. A set of new net zero pledges from countries including the world’s third-largest emitter, India (for 2070), mean that countries accounting for 90% of the world’s GDP have now pledged to go net zero by the middle of this century1. Before COP26, the world was on track for 2.7°C of warming based on countries commitments2. After Glasgow this has reduced to around 2.4 degrees on the basis of binding pledges, or 1.8 degrees on the most optimistic reading of government intentions3. This is positive progress, but with 1.1 degrees of global warming already locked in, we need to go further faster to limit temperature rises to 1.5 degrees.

Importantly, a mechanism was included in the final text to address this remaining gap, with countries ‘requested’ to revisit their targets by the end of 2022 – rather than, as originally envisaged, after a further five-year period. The pressure will need to be kept up on large emitters who still lag the overall 45% by 2030 requirement for a 1.5 degree consistent trajectory.

Phase-out of coal-fired power

Coal pile

Our prediction: Expect some new national announcements, but a full global agreement on phase-out remains a long shot

Outcome: Coal ‘phase-down’ survived in the final Pact – a major negotiating win

After a quarter of a century of climate negotiations, fossil fuels – which contribute around three-quarters of man-made greenhouse gas emissions – finally entered the formal COP outcome text for the first time. The wording went to the wire, with ‘coal phase-out’ replaced with ‘phase-down’, and the word ‘inefficient’ inserted into the commitment to end fossil fuel subsidies. But this was a significant moment and a major win for the UK presidency.

Also significant here was the creation of the ‘Just Energy Transition Partnership’, a $8.5bn deal between France, Germany, the UK, US and South Africa, aimed at providing finance for coal phase-out. Speaking with UK negotiators at the conference, we heard that this model could be replicated with other coal-intensive nations that lack domestic resource to finance the clean energy transition.

Some countries were willing to go further than the COP26 text, with 11 nations including Denmark, Costa Rica and France backing the Beyond Oil & Gas Alliance, which calls for the managed phase-out of oil and gas production. Whilst this lacks the backing of major powers, it marks a shift from focusing just on coal – the most damaging of the fossil fuels – to also looking at wider fossil fuel production.

Deliver on $100bn a year in climate finance

Beach and houses

Our prediction: Good chance of delivery; future commitment levels could be a thorny issue

Outcome: Delivery still falls short, with limited advances in future commitments

Finance was a central theme at COP26. In the informal stocktake we attended, we heard vulnerable and developing nations repeatedly calling on the major emitters to fulfil their existing commitments, and also to financially support adaptation – in other words, building resilience to changes in the climate. Loss and damage was another major theme, where the nations most exposed to and least responsible for climate impacts pleaded for compensation for damage to economies and society.

Heated negotiations ended in compromise, with developed nations re-committing to the delivery of $100bn a year in climate finance, as well as to double the share of adaptation finance within this total. Loss and damage proved a tougher discussion, with developed nations wary of being on the hook for potentially massive damages, and only willing at this stage to deliver technical support.

Animosity over the delivery of finance will linger and is likely to hamper future negotiations, as resentment builds over the lack of support for poorer countries resulting from issues primarily caused by the richer nations.

Zero-emissions transport by 2040

Our prediction: Potential for steps by individual governments, but not much chance of international consensus

Outcome: In line with our prediction

Over 30 countries and 6 vehicle manufacturers pledged to end sales of internal combustion engine vehicles by 2040. However, there were notable absences from this initiative – including the US, Germany, Japan and China on the government side, and some key manufacturers such as VW and Toyota – wary, perhaps, of weak government policies undermining delivery. Other commitments in this area included new initiatives to promote sustainable aviation. But overall, progress here remains patchy and very much dependent on national politics.

Halt and reverse the loss of trees and biodiversity by 2030

Our prediction: Good prospects for a high-level commitment, but questions likely to remain about implementation

Outcome: In line with our prediction

A pledge to end deforestation signed by over 135 countries was one of the earliest outcomes of the COP26 meeting. However, past pledges have failed to follow through into implementation. Finance is at the very heart of this debate, and successful implementation in the longer-term hinges on key countries, including Brazil and Indonesia, financially benefitting from their irreplaceable natural resources in a manner which supports Indigenous peoples and local communities.

Possibly more important than the high-level pledge was the resolution after many years of the ‘Article 6’ discussions governing the operation of carbon markets, which should hasten financial flows into forest preservation and reforestation.

Whilst broader discussions on the links between climate change with nature and biodiversity were more prominent than in any previous COP, there was disappointment that the final text removed mention of nature-based solutions. Nevertheless, we expect to see this being a major point of further work in the coming year.

‘Race to zero’ – Accelerated action by cities, regions, business and investors

Our prediction: Significant private sector commitments will help to put pressure on governments

Outcome: In line with our prediction

More than ever before, Glasgow was a ‘business COP’, with very visible representation from business and finance. The one-year delay in holding the meeting, a consequence of Covid, allowed for greater time to build business and investor momentum. By the time of the meeting over 3,000 companies had made a net zero commitment, and the Glasgow Financial Alliance for Net Zero counted $130 trillion committed to net zero – including BMO Global Asset Management (EMEA), and our parent company Columbia Threadneedle Investments.

These commitments certainly helped with negotiating momentum and represent a huge shift from only a couple of years ago when net zero commitments were relatively rare. In the margins of the meeting, though, we heard concerns about ‘net zero washing’ – that long-term 2050 commitments might not be backed by credible implementation plans.

Our investor engagement to date, and into 2022, focuses on exactly this issue. Whilst we welcome and encourage net zero commitments, our engagement seeks to ensure that these are backed by real actions, including ambitious short- and medium-term targets; decarbonisation strategies, including a shift in capital expenditure; and strong governance and disclosure. These expectations sit at the heart of our own net zero implementation plans as an asset manager, and the coming year will see up ramp up our efforts to encourage ambitious action, working with our peers in the investment community.

1 https://zerotracker.net/

2 https://www.unep.org/resources/emissions-gap-report-2021

3 https://climateactiontracker.org/documents/997/CAT_2021-11-09_Briefing_Global-Update_Glasgow2030CredibilityGap.pdf

Risk warnings
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.
The information, opinions, estimates or forecasts contained in this document were obtained from sources reasonably believed to be reliable and are subject to change at any time.
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.

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