COP26 and the race to be net zero

In just a few days’ time, world leaders convene for a critical summit on climate change.

The UN Climate Change Conference (COP26) kicks off in Glasgow and the pressure’s on for the countries attending. The world is watching, and it wants meaningful pledges to limit our damaging impact on the environment. In particular this means taking action to cut greenhouse gas (GHG) emissions, such as carbon dioxide and methane. 

Among the plethora of buzzwords and targets, the highest profile is ‘net zero’ – that is, producing no more harmful gases than we can take out of the atmosphere. As responsible investors, here are some key points to consider on the global race to net zero.

One very important distinction

Net zero doesn’t necessarily mean zero carbon. There’s a subtle – but vital – difference between the two. Moving to a low-carbon world needs both.

Zero carbon is no GHG emissions at all (think renewable power such as solar or wind). With net zero, however, the emphasis is on the net – minimising the emissions that come from all industry activity, and offsetting what can’t be avoided. This could be something like planting trees or using emerging technology (such as carbon capture and storage). 

Big promises to take action

As COP26 approaches, countries and companies alike have accepted the need for change. 

The UK’s target date to reach net zero is 2050. Its plans include funding electric vehicles and on-street charging; giving out grants for homeowners to ‘decarbonise’ (for example through installing low-carbon heat pumps); and expanding tree planting and peat restoration (natural methods of storing carbon). 

Several countries have set net-zero targets in the lead up to COP26. The most recent, Saudi Arabia – the world’s biggest oil exporter – plans to invest more than US$180 billion to reach net zero by 2060. 

Big corporations have also made commitments too over the last couple of years. Notably, several oil majors, including BP, Shell, Equinor and TotalEnergies – and this month Saudi Aramco – all have plans to make their businesses net zero.

Look who else is playing their part

Everyone’s getting in on the act (even the Queen, who in an off-hand remark said she was irritated about people who ‘talk’ but ‘don’t do’ on climate change).

In sport, September’s Premier League clash between Tottenham and Chelsea claimed to be world’s first net-zero football match, minimising emissions from matchday activity, fan travel and the food available at the game. Germany’s Bundesliga is going even further. Borussia Mönchengladbach have introduced car-sharing initiatives and cycle schemes to help fans make more sustainable journeys to and from matches.

And in the entertainment world, UK band Coldplay has grand plans for an eco-friendly world tour. This will include stage production powered by renewable energy, compostable entry wristbands for fans, biodegradable confetti used in the stage show, and low-emission transport where possible. The band also pledges to plant one tree for every ticket sold, to offset any GHG emissions.

Looking past the obvious

The move to net zero also informs how we look for potential investment opportunities.

Much of the focus on net zero is on measures to decarbonise energy, such as renewable power; or greener travel options (such as electric cars). After all, electricity, heat, and transport make up the vast majority of GHG emissions. But looking beyond these sectors, net zero is also having a huge impact elsewhere. 

Take agriculture, responsible for just under 20% of global emissions. A significant amount of that is methane coming from belching cows!

For some this is changing what they eat – plant-based foods, for example, have seen a huge rise in popularity. There’s also significant investment in measures to lower the sector’s carbon footprint. Dutch human and animal nutrition specialist DSM has created food additives for cows to reduce methane levels, while Burger King launched a new Whopper to much fanfare (complete with a yodelling US country child star), claiming that a lemongrass-based diet had helped cut methane emissions by a third.

We’re all part of the conversation

Net zero is now quite literally part of the global lexicon. The phrase is one of many climate-change and sustainability terms added to the Oxford English Directory this year. And COP26 is pushing sustainability even further up the news agenda. 

With this growing acceptance, we all as individuals can play our part.

Firstly, we can make a personal contribution: how we choose to travel, the energy suppliers we use and our consumption habits. But we have the potential for even greater impact, and take part in an even bigger conversation, in our role as responsible investors. 

We’re seeing greater numbers of asset managers focusing on the carbon-intensity of their portfolios and signing up to initiatives such as the Net Zero Asset Managers Initiative. Putting your money into portfolios that prioritise sustainability themes means you can invest in the companies planning for a net-zero world – and maybe avoid some of those who risk being left behind.

How does the race to net zero impact your investments? We can help you understand more about what it means for you and your portfolio. Just give us a call.