Patrick Rogers & Agathe Kuhn
Running over a two-week period in Glasgow from (31st October to 12th November), the annual United Nations Conference of the Parties (COP) is a rare opportunity for representatives from all 197 attending countries to collectively discuss solutions to the climate crisis. The 26th COP was of particular importance as it was the five-year successor of COP21, during which the Paris Agreement was signed. In Paris, countries pledged to keep global warming to “well below 2°C” relative to pre-industrial levels, and to pursue efforts to stay within 1.5°C.
The Glasgow Summit was significant as it represented three main deadlines: for the submission of updated Nationally Determined Contributions (NDCs); for the achievement of the $100bn climate finance target; and for the adoption of the last overdue pieces of the Paris Agreement rulebook, i.e. Article 6 on carbon markets. It was also held following the release of the latest International Panel on Climate Change (IPCC) report earlier this year, showing that we have already reached 1.1°C of warming, and that time is running out to keep 1.5°C within reach. The Glasgow Summit was thus billed by the UK hosts as the last chance to “keep 1.5 alive”.
The Glasgow Climate Pact was the headline document agreed on during the closing night of the summit, containing key language on coal, climate finance, and emissions reduction pledges.
On coal, the most emissions-intensive fossil fuel, the agreement originally pledged a “phase out” of unabated coal-fired power, language subsequently altered to “phase down” due to last minute demands from India and China. Still, the Pact represents progress as it contains the first explicit mention of fossil fuels in a COP text.
On adaptation finance, the agreement acknowledges with “deep regret” that the goal of providing $100 billion a year for mitigation efforts in developing countries has not been met, it does however urge developed countries to at least double the amount of annual climate finance it transfers to developing nations by 2025 based on 2019 levels.
Importantly, the Pact recognised that updating NDCs every five years subject to the ‘ratcheting’ mechanism as specified within the Paris Agreement leaves too much room for inaction. It therefore calls on countries, whose emission-cutting goals aren’t in line with 1.5°C or 2°C limits, to come back with stronger goals by the end of next year, and to submit an updated NDC annually thereafter.
Spotlight on the built environment sector
A welcomed first step in the right direction at COP26 was the inclusion of a day (November 11th) entirely devoted to cities, regions, and the built environment. This was in itself an achievement and a welcomed recognition of the need to strengthen collaboration amongst stakeholders in the sector. 26 new climate action initiatives were announced on the day, including:
- $1.2 trillion worth of real estate assets under management are now part of Race To Zero, a UN campaign to accelerate the shift towards a decarbonised economy. The campaign now has support from 1,049 cities and local governments representing 722 million people.
- 44 businesses comprising developers, designers and asset managers collectively representing $85 billion in annual turnover, signed the World Green - Building Council’s (WGBC) Net Zero Carbon Buildings Commitment.
- The UK Green Building Council (UKGBC) launched its Whole Life Carbon Roadmap which sets out agreed actions for reaching net zero emissions across the construction, operation and demolition of buildings and infrastructure.
While the proliferation of coalitions and long-term policy goals in the built environment are commendable, progress remains to be made from a sector which accounts for 40% of global annual emissions. Of the 186 countries that have submitted NDCs to the UN Framework Convention on Climate Change (UNFCCC), only 136 mention buildings, while just 36 make specific reference to building codes. Most countries do not include full building decarbonisation targets and leave issues around building materials largely unaddressed. As such, at COP27 in Egypt, one can expect the built environment to be kept at the heart of the conversation.
Sustainable finance: a key priority for the UK presidency
Finance day saw UK Chancellor of the Exchequer, Rishi Sunak, launch plans to make the UK the world’s first net zero aligned financial hub. As part of the plans announced to achieve this goal, he outlined the details of the UK’s Sustainable Disclosure Requirements (SDR) – a set of obligations to ensure increased transparency of sustainable investment practices. The announcement comes as financial market participants align their disclosure practices with the EU’s Sustainable Financial Disclosure Regulation (SFDR). Interoperability between the two systems will indeed be key to enable the transition of the financial sector towards more sustainable investments – as argued in a recent article by our Senior Policy Consultant, Agathe Kuhn.
Additional noteworthy developments in the world of sustainable finance include:
- The launch of the International Sustainability Standards Board (ISSB), operated by the International Financial Reporting Standards Foundation, the global accounting body. It aims to establish globally consistent climate disclosure standards for financial markets.
- The Glasgow Financial Alliance for Net Zero (GFANZ) - a coalition of banks, insurers and investors led by Mark Carney - which announced that $130trn of private sector finance is now committed to net zero. All member institutions have pledged to reach net zero by 2050 and to reach interim targets by 2030 across all emission scopes.
Broadly, COP26 showed that reducing emissions is high on the agenda for nearly all countries across the globe. It is thus all but inevitable that laggard companies will become the target of future regulation, and investors should consider the effect that increased political and regulatory scrutiny will have on the companies they invest in. Following the summit, the senior team at the UN Principles for Responsible Investment advised investors to be aware of “regulatory or legislative changes” flowing from the many intergovernmental agreements signed at the Summit.
Moreover, in the face of inconclusive ambitions from the world’s largest emitters, there is an increasing case for the futureproofing of physical assets against climatic changes to hedge against the risk of asset stranding. In a stark report to clients following the close of COP26, Morgan Stanley equity strategist, Jessica Alsford, and her team warned that, “current targets suggest holding warming to 1.5C is unlikely” and that “investors thus may need to increasingly focus on the physical risks of climate change, for example the impact of extreme weather on agriculture, infrastructure and productivity”.
Looking ahead, the case for reducing emissions from real estate assets will only strengthen - by 2030 efficient buildings are expected to represent an investment opportunity worth $24.7 trillion. The commitments made at COP26 will hopefully provide a further tailwind to investors seeking to reduce emissions across their portfolio. Now that COP26 has made clear the urgent carbon reduction targets our industry must achieve, Longevity Partners will show you exactly how to get there. We support you from start to end, offering a full range of sustainability services worldwide helping you mitigate your climate risk, future-proof your business, optimise your building performance, certify your assets, and develop and implement net-zero carbon roadmaps. Get in touch with our team today at [email protected]