What to watch at COP26

World leaders meet next week at the 26th UN Climate Change Conference of the Parties (COP26) in Glasgow, Scotland, and there could be significant implications for investors, CIBC’s sustainable investment head says. 

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“Research shows that the climate is in worse shape than had been anticipated by prior scenarios,” said Aaron White, vice-president of sustainable investments with CIBC Asset Management, in a recent interview. “Only by immediate action to achieve net-zero [emissions] by 2050 can we hope to accomplish the objectives set out in the Paris Agreement.”

Net-zero emissions refers to the level at which greenhouse gases from human activity equal the amount removed from the atmosphere, either naturally or through the capture of carbon dioxide, the most common emission.

At COP21 in 2015, the Paris Agreement to limit global warming was established. At COP26, participants will review the commitments established under the agreement. 

While many governments have accelerated their net-zero commitments, led by the EU’s pledge to reduce emissions by 55% by 2030, White said, he expects consensus at COP26 will be that more immediate and significant measures are required.

Also, the United States under the Biden administration will be at the table, which may provide “additional momentum,” he said. 

What are the implications for investors? Greater targeting of emissions comes with related investing opportunities. 

The transition to net-zero emissions will require “a dramatic shift in the global economy, including policy action and announcements related to the investment in green energy and infrastructure,” White said. He expects to see incentives to push the private sector toward net zero as well.

Potential measures include carbon pricing initiatives, taxation, and emissions trading schemes. “We will have a clear picture of what the future holds for the cost of emissions and how this will impact corporate costs,” White said.

Investors should also watch the green finance market.

“Investors have already been piling into green assets and renewable energy investments with the expectation that they will generate outsized returns,” White said. “COP26 is likely to accelerate the market, as a major objective is to help private finance facilitate the global economy’s transition to net zero.”

For that transition, financing expectations for the energy sector are more than $130 trillion by 2050, he said. “COP26 will provide more direction of where we will see the winners and losers from this capital allocation.”

Finally, the conference will result in the continued acceleration of innovation.

“The rising cost of carbon will create opportunities for businesses to develop new products and services,” White said.

An example is Scandinavia’s shift to the use of hydrogen instead of coal in steel making. Companies will also play a part in carbon removal.

“We are at an inflection point in tackling this crisis,” White said. “Investors that pay attention to these developments will be rewarded with lower risk and new and exciting investment opportunities.

On Monday, Canadian investors, including major asset managers and pension funds, signed a statement recognizing the need to move more quickly toward a net-zero economy.

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