Michael Jantzi, founder of Sustainalytics, tentatively gives the COP26 summit (the acronym for the United Nations Climate Change Conference) a good grade. “My assessment is positive but the jury is still out,” is what he says.
Below are his views.
Worries
I’m not convinced that U.S. actions, at the federal government level anyway, are going to match some of the net-zero promises and well-intentioned rhetoric.
Significant challenges with the former administration, like pulling out of the Paris Agreement, are behind us. Although we’ve seen a meaningful and important change in tone and proposed direction, the Biden administration seems to be struggling on a number of fronts--the infrastructure bill is being held hostage by a senator from a coal-producing state, and the Build Back Better plan may not get implemented.
President Biden was circumspect at COP.
Wins
The India commitment [to cut emissions to net-zero by 2070] was important. Developing nations need to be a part of the transition, but to this point, their participation has been underwhelming, in part because developing nations haven’t carried through on their commitments to help fund that transition. The fact that India has stepped up with a pledge is a good thing, even if it’s for 2070.
The Brazil commitment [to end illegal deforestation by 2030 and become carbon neutral by 2050] was encouraging.
The announcement that the U.S., the U.K., France, Germany, and the European Union will provide $8.5 billion to help South Africa transition away from coal is also a good thing.
I like some of the initiatives that were not “energy sector”-specific. On methane, which sometimes get missed in the discussions, 90-plus countries support reducing overall methane emissions by 30% by 2030, although Russia and China were holdouts. On deforestation, there were 100 countries pledging to end deforestation by 2030.
Aspirational is good
Big banks, institutional investors, insurance companies, and regulators announced that the amount of capital controlled by institutions committed to net-zero initiatives now tops $130 trillion, up from $5 trillion in 2020, according to the Glasgow Financial Alliance for Net Zero.
As it stands, no government, company, or investor that is signing up has achieved net-zero. Some companies and investors have a decent understanding of what net-zero means and how they get there, others not, and then there’s everything in between. These initiatives are important not so much because of what they tell us about the state of play today, but when CEOs make a public commitment to achieve net-zero, they’re committing to infuse all relevant products and services from a net-zero angle going forward. Large financial institutions are committed to use the force of their assets in a more meaningful and comprehensive way than they have been.
This is aspirational, no question. But from my perspective, these companies, these blue-chip players, went through a governance process to decide to make this commitment. When you make a public statement, you plant your flag in the ground. It allows individuals and organizations to evaluate you and judge you on a standard that you’ve committed to. It gives investors the opportunity to say, “Hey, you made this commitment publicly because you said it was good for business, and it needed to inform your business decisions going forward. We’re holding you accountable.”
Finally, when we talk about net-zero, it’s not just about carbon or climate. It’s a conversation about a transition of our economy, and many of the business models that underpin it. Make no mistake, I think we’re talking about a mind bogglingly large transition. For many companies, it will mean a fundamental reexamination of what they do and how they choose to position themselves. All companies will experience an impact to their business models. The quicker we figure out which companies will be winners, survivors, or casualties, the better.
As narrated to Leslie Norton, Morningstar's editorial director, sustainability.