Fund managers call for more action and fewer words on climate change

Managers give their views on COP26, including the key outcomes investors should look out for. 

Fund managers have cautioned that COP26, which began yesterday, may turn out to be a missed opportunity in the fight against climate change.

The fund management industry can play a big part in putting the planet on a more sustainable footing, but as Raynar Portfolio Management’s Philip Rodrigs points out,there needs to be joined-up action from world leaders.

He says: “It is important for investors and the investment industry to witness words being turned to action at events such as COP26, which should be aiming to harness the desire for long-term profitable investments that also facilitate a greener future.

“Investors will want to understand how elected officials will utilise the market imperative for profitable growth by bringing forward demand for otherwise expensive technologies and fuelling innovation as profits are recycled into further growth.

“Bridging the gap ultimately requires a co-ordinated strategy for progressively levelling the cost of green technologies with fossil fuels. This also requires the ability to do so on a global basis to assist those countries less able to eliminate the economic imperative for cheaper fossil fuels.”

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Stefano Montobbio, head of ESG and governance at EFG Asset Management, also expressed concerns that COP26 may not prove to be a panacea.

“I’m sad to say I have quite low expectations for COP26, as I think there is not yet a strong enough commitment by the international community to solve the climate challenge,” he says. 

“The ‘not in my backyard’ logic that translates into ‘I want to solve but without sacrifice’, is still too persuasive and data are often used to point out the faults of others, while forgetting the harsh truth of cumulative or per capita emissions. 

“Data can give different information depending on how it is looked at. COP26 will probably be an intermediate step in the fight against climate change. It won’t be the definitive one, but a necessary step that can hopefully create the more homogeneous cultural background needed to lay the groundwork for bolder action in the future.”

While expectations are low, what are the key outcomes that sustainable investors should look out for?

According to Abbie Llewellyn-Waters, head of sustainable investing at Jupiter, two things should be on investors’ radars. “First, COP26 will accelerate the urgency to address carbon capital at risk, and for us as stewards of our clients’ savings, it is critical to allocate capital in line with the Paris Agreement, through a low-carbon portfolio that enables a 1.5°C climate scenario – we think this positions our clients at the forefront of this urgent transition,” she says.

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Second, Llewellyn-Waters expects that climate-related financial risk disclosures will become more standardised.

She adds: “In combination with the clearer policy direction that we can expect in the coming years, this should allow investors to be more confident in internalising the costs of climate change into their valuation models and seeing the direct effects of paying for carbon on a company’s cost base. The cost of capital for carbon-intensive businesses should increase.

“Fundamentally, we believe that investing in well-run companies with sustainable business models leads to better long-term returns for our clients and helps to facilitate the transition to a fairer world. COP26 will push this into the public consciousness and help to accelerate the shift we have already been seeing over the last few years.

“As fund managers, it is important that we help our clients to understand that capital allocation can play a crucial role in driving change for a better world, and how their savings deliver real-world outcomes – to the planet, to people, and to profit.”