We were curious to see what would happen during this week’s 2021 United Nations Climate Change Conference, or COP26. After all, commitments to net zero emissions need to be coupled with realistic pathways for their delivery, and so far, they have not been.
Previous pledges on climate action have gone unfulfilled and governments have struggled to agree on joint rules for carbon markets. Meanwhile, financial contributions to allow developing countries to move away from carbon-intensive industry have fallen short, prompting deadlines to be extended.
The absence of key heads of state at the conference has caused the prospect of a comprehensive new plan to fizzle. Heads of state from Russia, China and Saudi Arabia have stayed away, aware that in nearly any outcome they will be painted as the villains of the piece. The U.S., the world’s biggest greenhouse gas emitter, is struggling to get key climate measures through congress, undermining President Biden’s capacity to encourage joint action on the international stage.
However, there are reasons for climate campaigners to be hopeful. Net-zero commitments may be distant, but they provide investors with a framework to work with. European commitments to phase out the sales of new internal combustion engine vehicles has prompted the auto industry to reconfigure manufacturing in favor of electric vehicles, and sales have outstripped forecasts, including our own. Europe’s shift to green power generation has produced the same trend, although country by country, the results are uneven.
The shift to decarbonize industrial activity is a rocky road, but the first steps are being taken. Watch how public policy translates into investor behavior because this will be the real test of COP26 in the months and years ahead.