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What’s new in responsible investment?

COP 26 has just concluded and, by all accounts, what was deemed the most important annual climate conference since the 2015 Paris summit failed to live up to expectations. Its one-year postponement, caused by the pandemic, only heighted the sense of urgency. More than ever, time is running out to limit the consequences of global warming.

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COP 26 highlights

As many have pointed out, the most recent Conference of the Parties (COP) gave rise to much discussion but little in the way of results. In an ideal world, the parties would have presented new and more aggressive reduction targets, as planned in the Paris Agreement, in response to the increased concentration of GHGs in the atmosphere. Instead, divergent interests dashed the hope of reaching a collective commitment to limit global warming to 1.5°C.

Other disappointments included the failure to meet the pledge of $100 billion that industrialized countries are supposed to provide annually to support developing countries, which are hit hardest by climate change. The commitment to completely phase out coal and to end fossil fuel subsidies was also scaled back to accommodate China and India. It should be noted, however, that the text of the agreement finally recognizes the role of fossil fuels in global warming.

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Fortunately, the event did yield some positive results, including the finalizing of essential elements of previous COPs that were still pending. Among these were the Rulebook of the Paris Agreement. With the finalization of Article 6, which deals with international cooperation between countries to achieve their reduction targets, the guidelines for a global carbon market were approved.

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The use of common interim reduction targets1 was recommended and should result in alignment of the parties by 2025 and thus facilitate the challenge of monitoring, aggregating and comparing country targets. The Transparency Framework rules were also adopted, which will make it possible to standardize reporting requirements.

Beyond the resolution of these last issues, which took far too long, there is also reason to welcome promises to cut methane emissions and commitments to end deforestation by 2030.

Implications

COP 26 won’t go down in history as a pivotal moment in the fight against climate change but rather as an opportunity to take small steps forward and maintain momentum. The effects of climate change cannot be delayed, though, and they continue to accelerate. In the future we are likely to continue discovering the consequences of climate change, whether they are expected or not.

Impact on markets and investors’ role

In the absence of significant action by the world’s leading decision makers, the markets will continue to operate by trying to forecast and mitigate the negative effects that may occur and their impact on asset valuations. Those who are most aware of climate change see the solution as also involving an investment approach that goes beyond risk management to help solve this global challenge.

At FÉRIQUE Fund Management, we’ve been taking the climate issue into account for many years, but we also think we need to pick up the pace. In this regard, we have taken several initiatives during the year!
We launched three new funds focused on sustainability and innovation; several of our external fund manager joined the Net Zero Asset Manager, a group of managers committed to carbon neutral investment strategies, and we encourage others to join. We made progressed our carbon plan to align our funds family with the Paris Agreement, and finally, our operations are now carbon neutral.

Read more articles   Responsible Investment

1 Nationally determined contributions (NDCs).

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