Global COP-eration or just “bla bla bla”?

The United Nation’s 26th Climate Change Conference, COP26, concluded with a new climate deal, the Glasgow Climate Pact. The agreement has been endorsed by almost 200 countries.

Encouragingly, the final agreement targets 1.5°C, medium-term 2030 ambitions, methane, and language that clearly addresses fossil fuels for the first time ever – a “phase down” of coal and the “phase out” of inefficient fossil fuel subsidies. Moreover, Climate Action Tracker (CAT) estimates that key sectoral pledges on methane, coal, deforestation and transport can close the emissions gap by 9%.

Another key outcome was conclusion of the Paris rulebook following agreement on article 6 regarding carbon markets. The new framework addresses concerns around double-counting and will require labelling of old offsets. In total, the IEA estimates that COP26 climate commitments could limit global warming to 1.8°C, significantly down from the 2.7°C pre-Glasgow trajectory. The caveat is that a quick and full implementation of all commitments is required for these estimations to become a reality. We think the next 6-12 months will be key to determining the success for the outcome of COP26.

The wide range of pledges announced on methane, coal, transport and deforestation have been a positive step in the right direction, particularly at the macro-level when assessing the scope of global collaboration. There were several announcements that we would flag as relevant to our investment themes:

The emphasis on 1.5°C instead of 2°C will likely place pressure on companies to commit to ambitious 1.5°C targets, and the investment community will be following such developments. The announcement of the 'Breakthrough Agenda,' a 10-year plan to make clean technologies and solutions more affordable before 2030, was encouraging. The break-through agenda covers power, road transport, steel, hydrogen, and agriculture.

DNB Renewable Energy and DNB Future Waves invest in sustainable enablers of a better environment, companies that demonstrate a solid ability to reduce or avoid emissions for their customers or their customers’ customers or improve resource efficiency. As these funds invest in solutions-providers to climate and environment challenges, we believe that the underlying portfolio companies stand to benefit from additional demand as companies look for opportunities to position themselves for the green transition and deliver on 1.5°C.