Please find below our Investment Market Update as at 26th November 2021.
Reflections from COP26
I promised an update from the 2021 United Nations Climate Change Conference (COP26) and so today we are sharing the main takeaways. I think it’s fair to say that there is still a significant gap between the science and the politics of climate change. Protectionism being the name of the game with some of the main protagonists. However, it shouldn’t disguise the momentum that is underway by companies and investors.
Grab a cuppa, let’s dive in…
The key outcomes for investors
I can assure you this may not be as memorable as a visit to Peppa Pig World, but it will be more meaningful. In a webinar with one of our investment partners, LGT Vestra, we had two main contributors to these reflections, and they were:
- Ted Franks – ‘Sustainability Guru’ from WHEB Asset Management
- Phoebe Stone – Head of Sustainability at LGT Vestra
Both speakers agreed that the politics of ESG (Environmental, Social and Corporate Governance) has not quite got there yet, however they take some solace in the knowledge that the direction of travel is positive in comparison to previous COP meetings. Phoebe commented that only 50% of the world was previously signed up to net zero pledges. Now 90% are committed to being net zero, including India.
Ted was disappointed coal is on a phase down rather than a phase out but was pleased with the increase in subsidiary pledges.
Overall, both Ted and Phoebe thought it was a step in the right direction, but it could have been better. There was a real opportunity for transformational change but sadly the momentum wasn’t grasped.
Thematic investment opportunities
In the presentation on COP26 outcomes, Ted referred to “Thematic Investments” which is something we are embracing here at Blue Sky via our in-house model portfolios. He talked about how huge amounts of money/investment is being committed to future-proofing economies.
There is a significant amount of innovation with technology playing a key role. Here at Blue Sky, as you know, whilst geography and economics influence our positioning within the portfolios, we like to embrace future proofing strategies which include genetic developments, biotechnology, water management, sustainability, forestry, renewables, infrastructure, robotics, ecommerce, artificial intelligence and healthcare.
Ted and his team at WHEB are heavily investing in renewable energy, particularly in the solar and wind energy industries. They went onto say there is going to be a huge shift from non-renewables to renewables. He also highlighted the importance of governments now having official targets to phase out traditional vehicles and implement electric vehicles. Japan and Germany are yet to sign up to these targets (big car manufacturing countries of course) but the United Kingdom have already started to transition to EV Vehicles and committed to stop the buying and selling on non-electric cars by 2035. At present though, this pledge does not include trucks, bikes or trains.
Ted also talked about other areas for investors to consider including afforestation, agriculture, and emissions capture. 85% of the world’s forests and land are now covered by no deforestation pledges which is great news on many levels! More than 100 world leaders signed a declaration to halt and reserve forest loss and land degradation by 2030. Under such agreement, 12 countries pledged to spend $12 billion in public funds between 2021 and 2025 to protect and restore forests with an additional $7.2 billion is to be spent by private investors.
I mentioned innovation earlier and at the conference they introduced a Global Methane Pledge to reduce methane emissions by 30% from 2020 to 2030. An example of how possible solutions are being used is Bovaer, a company which helps farmers to reduce their animals’ methane output. They save 1 tonne of CO2 equivalent per cow every year. See this article for more information.
Closer to home, one of our long-standing clients is heavily involved in carbon capture – in fact his company is aptly named Carbon Kapture. Howard Gunstock is the Chief Kelper and talks about how seaweed is far more effective than forestry at absorbing carbon. Kelp is a type of brown algae seaweed that can grow up to two feet per day, making it one of the fastest growing organisms on the planet. Like plants on land, seaweed uses photosynthesis to absorb CO2 and grow biomass. Kelp has a huge potential to be the large-scale solution for global warming and a key player in fighting climate change.
Sustainable Development Goals
Phoebe reinforced that LGT Vestra’s strategy is aligned to the United Nations framework around Sustainable Development Goals.
Below are the Sustainable Development Goals which COP26 targeted most:
- Goal 6: Clean water and sanitation
- Goal 7: Affordable and clean energy
- Goal 11: Sustainable cities and communities
- Goal 12: Responsible consumption and production
- Goal 14: Life below water
It was agreed that biodiversity is crucial in getting to net zero. Previously there were no metrics to measure businesses impact on biodiversity, and so a diversity index was introduced at COP26 which allows investors to analyse/scrutinize companies and measure their impact. Great news for potential investors too!
What about China and India?
I think we all probably agree that Cop 26 didn’t go far enough with some of the main economic powers buying time. Currently, China and India’s target dates are further away from those such as the UK or US. India committed to being net zero by 2070 and China by 2060.
It is interesting to note from Phoebe however, that China is the biggest producer of renewable energy and investing vast amounts into this area.
Well, that was a challenge getting 12 days of meetings into this update but I can assure you my first attempt would have sent you to sleep! Hopefully this gives you sufficient insight from an investment perspective.
There is so much more awareness of the damage being done to our planet, the action required and of the opportunities unfolding across the Sustainability space for companies and investors alike. Good to see.
ESG doesn’t just concentrate on the environment of course, it also concerns changing social and cultural dynamics along with governance. With more metrics in place, it’s now easier to invest in this space. Way back, investing into Sustainable companies was fraught with danger. Firstly because of a lack of transparency, secondly because of weak governance, thirdly because of sketchy research and lastly, through lack of choice. Now we can invest with confidence.
Innovation is important in solving climate change issues as Howard’s company, Carbon Kapture, clearly reinforces. Hats off to him and his team.
Have a great weekend and wrap up warm!
Gary Neild and the Investment Team
Please Note: This communication should not be read as giving specific advice regarding your personal circumstances. This would only be given following detailed assessment of your individual needs. The value of investments may fall as well as rise; you may get back less than invested. Past performance is not necessarily a guide to future returns.