Gresham House
Specialist asset management
October 2021
October 2021
As the world gathers together for the UN Climate Change Conference of the Parties (COP26) in Glasgow, we speak with Rebecca Craddock-Taylor and Peter Bachmann on the best way forward for investors looking to get involved and contribute to the growing need for sustainable investment.
Aiming to bring parties together to push forward actions to bring us closer to the goals of the Paris Agreement and the UN Framework Convention on Climate Change, COP26 is taking place between 31 October and 12 November 2021.
Why does COP26 matter to investors?
Rebecca Craddock-Taylor:
Investors have contributed to the climate crisis through the investment choices made in the past. Looking forward, they are a crucial part of the solution. It is clear from Government commitments so far that without significant public and private investment we will not achieve the ambitions of the Paris Agreement and limit temperatures to 1.5˚C.
The outcomes of COP26 will drive policy changes that will create significant investment opportunities, but also introduce new risks that need to be built into investment analysis and how investors assess value across investment markets. 
Peter Bachmann:
All investors will be keeping a close eye on the outcomes of COP26, but it will be especially important for sustainability-focused investors who will be looking for COP26 to finally bring global, legal commitments to forge a proper pathway to a 1.5˚C limited future.
Without unified and global action, investors will continue to focus their efforts solely on those countries and sectors where there is a regulatory and/or financial incentive to drive net zero investment. This isn’t what the planet needs, instead we need a global framework to tackle climate change, based on the investment requirements from both public and private sectors, and we need that coming out of the Conference of the Parties to the Convention on Biological Diversity (COP15) in October as well as COP26.
What key topics will you be most likely to follow
in the build up to and during the conference?
Peter:
We will be particularly interested to see how COP15 influences the interaction between measures focused on nature and how they are considered in the wider net zero solution that will be the focus of COP26.
At COP26, the willingness of the US and all other major nations to sign up to an enforceable mechanism by which the world can achieve net zero emissions will also be a key focus – without that the whole of the conference is just mood music. Furthermore, decisions around who and what is going to be needed to fund the changes needed in infrastructure and technology to facilitate COP26 will be instructive as these will highlight how serious all nations are about tackling climate change.
Rebecca:
We are also closely monitoring developments around global consolidated sustainability reporting standards. Standards that provide consistent and decision-useful information for market participants are vital in helping to allocate capital towards achieving global net zero commitments. The IFRS Foundation has made significant progress alongside others towards the creation of consolidated sustainability reporting standards.
It is expected that a new International Sustainability Standards Board (ISSB) will be agreed and established before COP26, and we hope that COP26 itself could provide the environment to marshal political agreement around ISSB at a global level.
What do you hope to get out of COP26?
Rebecca:
A legally binding, global collaborative approach to transitioning to a low carbon economy that is predicated on science policy dialogue. The ambitions of the Paris Agreement are out of reach if we continue to take a regional approach to the climate transition. The countries that have been responsible for most historical emissions must immediately scale and mobilise the £100bn per year promised to developing countries.
As Peter has noted, we need a clear, global framework to tackle climate change, and it needs to be anchored around the investment requirements of the public and private sectors.
Furthermore, we would hope that any discussion of climate finance will include how it will be used to deliver inclusive benefits such as gender finance and ensure climate adaptation and resilience of developing nations.
Peter:
Globally agreed carbon emissions reductions plans for every nation that are legally binding and enforceable and that are introduced at a pace that may genuinely avert our impending climate disaster. However, implementation of this would be impractical without a legally binding global carbon tax mechanism.
If we had a wish list, then we would hope to see a mechanism created whereby the proceeds of these carbon taxes could be used to invest in ultra-early-stage new technologies to continue to push new rapid carbon emission reductions.
What would a successful outcome from COP26 look like?
Peter:
A roadmap for the implementation of global carbon reduction legislation within a year and a realistic pathway for further sharpening of carbon reduction targets as new technologies evolve.
We also hope to see a focus on the regeneration of nature included within this mix of solutions as that is often overlooked, but is a crucial part of the solution. Failing to realise the positive contribution nature offers both our economies and way of life will have serious long-term implications that cannot be ignored.
At the local level, we hope to see the UK Government take on binding commitments that span multiple parliamentary terms, to ensure investors have the regulatory certainty to invest the substantial capital needed for the new sustainable infrastructure to deliver these carbon reductions.
Rebecca:
A successful outcome for COP26 would also be an agreement on a global carbon price that accurately reflects the risks of climate change. Current carbon pricing needs to increase significantly to reduce emissions in line with net zero pathways and direct capital towards scaling climate solutions. The cost of emissions can no longer be externalised and those responsible for creating carbon emissions should pay the true costs of the damage caused.
Without an accurate carbon price, investors, businesses, and governments will end up paying far more over the long term in order to manage and mitigate the physical risks of climate change.
An overreliance on offsetting is a dangerous path for the conference to take. COP26 must ensure attention remains on emission reduction as well as the protection and restoration of our existing ecosystems that lock up carbon.
What are the investment implications of COP26 both in the immediate aftermath and longer term?
Peter:
COP26 has the potential to create winners and losers from an investment perspective.
Those countries with a clearly supportive regulatory stance will attract the immense amounts of capital needed for the new infrastructure required to decarbonise every aspect of our daily lives. COP26 also has the potential to create infrastructure sector winners to the extent policy favours certain solutions over others. Our hope is that COP26 focuses on functional outputs and leaves it to the market to ultimately determine the most effective solutions to decarbonisation.
Rebecca:
In the scenario of a new global collaborative approach to a low carbon economy, with well-defined targets for the roll out of renewables and other low carbon technologies, we would expect COP26 to provide a further tailwind for those sectors and technologies less exposed to higher carbon prices and carbon taxes.
It could also provide a springboard for further investment into nascent technologies that both mitigate and reduce carbon emissions.
Conversely, if Nationally Determined Contributions, and subsequently policy commitments, do not align to a 1.5˚C temperature pathway, investment capital will become less focused on supporting the transition and, by necessity, will become more focused on managing the physical risks associated with higher temperature pathways.
All views expressed are those of the participants in the Q&A and not necessarily of Gresham House.
Rebecca Craddock-Taylor
Rebecca joined Gresham House in July 2020 in the newly-created role of Director, Sustainable Investment. She chairs our Sustainable Investment Committee. Previously, she worked as an ESG Strategist at Univest, responsible for setting a leading sustainability framework across Univest’s investment approach, as well as setting their sustainability objectives for the next five years. Prior to this, she worked at Hymans Robertson as an Investment Consultant and Responsible Investment adviser where she designed and developed their responsible investment client proposition whilst working closely with a range of clients to enhance their approaches to responsible investing and ESG.
Peter Bachmann
Peter joined Gresham House in June 2020 and is the Managing Director of the Sustainable Infrastructure division and a Fund Manager for BSIF. He is also a member of the Gresham House Sustainable Investment Committee. Prior to Gresham House, Peter led the investment and exit of the Sustainable Infrastructure-focused Environmental Capital Fund (ECF) for SEP. He has over 20 years of public and private equity investment and fund management experience and has invested into and exited over 170 infrastructure and technology companies across all sectors with an equity value of over £1.3bn and capital value of c.£5bn. He is a judge and mentor for the Cambridge Institute of Sustainability Leadership (CISL) Accelerator and the CleanTech Challenge.
