During November 2021, the eyes of the world were on Glasgow and the COP26 climate summit which was attended by leaders from across the globe representing countries that had signed the 1994 UN Framework Convention on climate change.
The conference, which was delayed due to COVID-19, usually takes place every year and was the 26th meeting of the Conference of the Parties (COP).
The Paris Agreement, possibly best known for when the US opted out of it under the Trump administration, was the last major development to result from the conference and holds member nations accountable for reducing greenhouse gases, increasing renewable energy, controlling global temperature increases and helping poorer countries tackle the effects of climate change.
Key outcomes of COP26
- The members were challenged to develop a plan over the next year to keep global temperature rises under 1.5 °C.
- On the whole, it was agreed to wind down the use of fossil fuels, such as gas, oil, and coal with Western Europe and North America agreeing to withdraw financial support for fossil fuel projects abroad. Opposition came from China and India who pushed for the agreement to be watered down due to their heavy reliance on fossil fuels.
- It was noted that richer countries have not been meeting their commitment to financially support poorer countries against the effects of climate change. An example would be financing infrastructure to protect them against severe weather damage. However, no specific commitments have been made in this area.
- By 2030, deforestation in 100 countries was agreed to be stopped and methane emissions should be cut by 30%. However, again opposition came from China and India, as well as Russia who have all not agreed to abide by this. Unsurprisingly, these three nations form the world’s top three methane polluters.
- The US and China have made a joint commitment to address climate change over the next decade. This is of particular significance due to the countries’ frosty trading terms and their significant contributions towards global carbon emissions.
The summit has made important progress, however, questions have already been raised as to whether it went far enough.
The next meeting will be held in Egypt in 2022 and only time will tell if the commitments made are kept and whether they make a real difference to the climate.
Potential areas for investment
With the world’s focus on reducing emissions, the following areas could be important investment themes in the coming years:
- Renewable energy sources including wind, solar, and anaerobic digestion (creating energy from food waste products)
- Recycling and the productive use of waste
- Infrastructure in developing countries
- Sustainable farming and meat alternatives
- Eco tourism
- Electric vehicles
Equally, the following sectors may see a decline in investment due to the push for sustainability:
- Mining companies or those relying heavily on fossil fuels
- Manufacturing and mass production
- Air travel, particularly short-haul tourism
- Factory farming
Despite growing trends and popularity of buying and investing sustainably, consumers will ultimately opt for the most cost-effective and convenient solution. Therefore, significant investment and international government policy is needed to ensure that sustainable products and services become the normal.
Why invest sustainably?
As shown below, there are many reasons why you may choose to invest sustainably within your investment portfolio:
- To help reduce the impact on climate change
- To reward the companies with high ethical standards, while encouraging others to do better if they want to secure investment
- To benefit from innovation and new technology
- The key word is ‘sustainable.’ By definition, these companies are likely to be more resilient and have a longer life span than businesses relying on depleting materials and energy sources.
How to invest
There is an increasing number of fund managers offering ethical and sustainable options meaning that it has never been easier to invest sustainably.
You are now also able to invest sustainably and ethically using a variety of different platforms and products including:
- Direct shares of companies with strong Environmental, Social, and Governance (ESG) credentials. It is worth noting that this may carry significant risk and therefore it may be more suitably to hold a variety of shares to ensure your portfolio is well-diversified.
- Ethical tracker funds, which aim to replicate an index of sustainable companies. This provides a low-cost investment choice and access to a wide section of the market with a modest investment amount.
- Managed sustainable funds. This allows you to invest in a selection of companies which meet the fund managers’ criteria. The fund may include equities, bonds, property, and alternative assets, which provide diversification. You can also benefit from economies of scale as investors’ funds are pooled together.
- Discretionary managed portfolios. These can either be managed on a model portfolio basis or fully bespoke. This option is usually more expensive than investing via a fund but offers greater control and transparency over your investment. You may even be able to request specific holdings or exclusions.
Green investments are a growing trend and becoming fully mainstream. This is despite, at times, slow political progress and a heavy reliance on international cooperation.
If you would like to discuss the prospect of investing sustainably and ethically for the future, then please do not hesitate to contact a member of the team.