What the U.N. local weather talks obtained proper and improper, in accordance with a fund supervisor and a climate-risk researcher


Pledges from world leaders at the UN climate talks in Glasgow, Scotland to limit the rise in global temperatures will help, but more concrete action needs to be taken, said a fund manager and climate risk researcher.

A draft UN climate pact published at the COP26 meeting underscores the need to reduce greenhouse gas emissions by 45% by 2030 compared to 2010 levels in order to reach net zero. And it reaffirms the goals of the Paris Agreement of 2015 to limit the temperature rise to 2 degrees Celsius compared to pre-industrial levels.

Many climate scientists say that warming must be limited to 1.5 degrees Celsius by 2050. Previous commitments would be enough to limit the rise in global temperatures to 1.8 degrees Celsius by 2100, but we’re not going to zero.

The draft also calls for countries to “accelerate the phasing out of coal and fossil fuel subsidies,” but does not specifically mention ending the use of oil and gas.

A big surprise from the conference was the news late Wednesday that China and the US jointly announced that they will work more closely to strengthen climate cooperation, although the details are not known.

Di Zhou, Investment Principal at Cambiar Investors, and Alicia Karspeck, Head of Research at Fabric, who works with investment advisors and institutions on portfolio climate risk, agree that commitments from countries and private institutions point in the right direction, but more is needed to do in terms of spending and technology sharing.

“I don’t know if the conference made a great contribution to moving away from fossil fuels. It’s just an unpopular thing to point out. ”- Alicia Karspeck, Research Director at Fabric

MarketWatch spoke with Zhou and Karspeck about insights from the event, including how developing countries could be supported by richer ones, the current limits of renewable energy and the advances made by China, the world’s most populous country.

Q: Activists like Greta Thunberg say the COP26 was just a show and nothing was achieved. Is she right?

Alicia Karspeck: No, I don’t think it’s just for show. Consider the counterfactual what would happen if a police officer weren’t so visible. It could always be better. The role of the protesters – to cast a skeptical look at it – is important, almost to keep people honest. It’s just an incredibly complex problem.

Q: Are there any profits or success stories from the event?

Karspeck: I saw the methane pledges [to reduce methane by 30% over 2020 levels by 2030] as a great success. It doesn’t create the tension that you have when you stop using fossil fuels where a crisis is going to occur. Methane is a very powerful greenhouse gas. Most of what happens to methane is that it leaks out through the production of fossil fuels. But there are technologies that prevent that. I see this as manageable and practical and it’s a great thing to get out of.

Di Zhou: There is consensus on phasing out coal; It’s just about which region makes it more aggressive.

Q: China was not represented at COP26. The country needs to balance growth and reduction in CO2 emissions. How can this be done?

Zhou: China has already announced a number of commitments in the run-up to COP26, including peaking carbon consumption before 2030 and curbing growth in coal consumption – “growth” is the key word. There is great urgency in China without any pressure from developing countries. For example air quality. If the air quality is constantly bad and causes health problems, that is a political issue for them too. I think China is very committed to reducing CO2 emissions. And that has global effects, because we know from China that it has a very good ability to implement it.

Q: There is tension between developed Western nations urging emerging economies to cut emissions, but the global South – regions of Latin America, Asia, Africa and Oceania – says richer countries have failed to deliver on their promises to poorer countries. Was there consensus or progress?

Zhou: Climate change is real and we really need everyone to get involved. The exchange of technologies is important. You can’t just say, “Hey China, India, you have to do this,” but you are not helping them with money or technology. Their economy is based on coal. Sharing technology, developing best practices, and providing funding will help. It’s a carrot-and-whip approach. Not everything can just stick.

Q: What will you see next?

Karspeck: I am excited to see what will happen to the Glasgow Financial Alliance for Net Zero. Hundreds of banks, insurance companies, and money managers with assets of more than $ 130 trillion are committed to net zero. The controversy over this is that they don’t really commit to divesting fossil fuels, and begs the general question of how they can credibly get to net zero. It will really revitalize the carbon offset market, especially in the area of ​​carbon offsetting monitoring and validation. As people point out, they are unlikely to actually part with fossil fuels. So this will mostly have to be done through offsets.

Q: This year showed the bumps in the energy transition, especially in Europe, and we’re seeing fossil fuel prices rise. When it comes to the basics, most people want the lights to come on when they flip the switch. Does this conference highlight the difficulties facing the economy in moving away from fossil fuels?

Zhou: That is why the market leaders in the emerging markets are hesitant. Getting rid of your very reliable base load electricity production and replacing it with renewable energies that are intermittent and without adequate storage is a problem. Europe had an energy crisis. If it happened in India or China, the damage would be worse.

Karspeck: I don’t know if the conference did a great job highlighting the move away from fossil fuels. It’s just unpopular to point out. But in practical terms it’s true. [President] Biden once mentioned it in one of his speeches and I thought it was a bold and practical truth.

Q: What should investors take away from this event?

Zhou: This only accelerates the need to build more renewable capacity plus storage capacity, and we need to do more of storage to diversify renewable energy sources. This is a huge investment opportunity for utilities and is having an impact on European utilities given the energy crisis we experienced this summer. It’s a golden opportunity for utility companies to actually grow.

We like two European suppliers, the Spanish supplier Iberdrola IBE, -0.54% and a UK supplier, SSE SSE, -0.36%.
Iberdrola has one of the fastest growing renewable energy companies in Europe and, more importantly, one of the largest renewable energy pipelines in Europe. So it’s not about what is happening, but what they are going to build. They have always been popular with investors because of their quality management.

SSE is very similar. After Orsted DNNGY, SSE has the second largest offshore wind portfolios and pipelines in the world, +1.62%.

Karspeck: I think investors, at least those we work with, need to have more serious conversations with their advisors to understand the makeup of their portfolio.

Many retail investors hold a basket of ETFs or mutual funds and may not even know what’s in them. If I hold a Vanguard fund, even if I just get this basic understanding, what are the assets in it? Do I have fossil fuels? If so, do I want that? Even starting out with these basic conversations can really open your eyes.

Debbie Carlson is a columnist for MarketWatch. It does not own any of the funds or stocks mentioned in this article. Follow her on Twitter @ DebbieCarlson1.

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