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Sustainable Finance Community Update

Working towards a sustainable future

An IFoA Sustainability Board initiative. Follow us on LinkedIn and Twitter for further updates and insights, and subscribe to the newsletter here.
 
19th November 2021
 
With COP26 drawing to a close, SFC brings together articles which reflect on outcomes of the event, as well as critical analysis and opinion pieces. A much-reported moment was the wording change from 'phase-out of unabated coal' to 'phasedown' proposed by India's Environment Minister, Bhupender Yadav. Whilst  critics cited this change as disappointing, analysis unpicks this wording as largely symbolic, due to a lack of numerical targets. Others go further to say that acceptance of the 'phasedown' language itself is a big step, combined with India's 500 gigawatt target for renewable energy by 2030.
Image: Wind turbines in Cádiz, Spain by Luca Bravo on Unsplash.
In the spotlight
Book club - January 2022 sign ups open
 
Following a reshuffle within the SFC team, we are now set-up to recommence regular book clubs. We will be hosting our next book club in January where we will be discussing Less is More: How Degrowth Will Save the World - by Jason Hickel. This is a thought provoking book, taking all we’ve been told about growth and development and turning it inside out, offering a radically possible vision of a post-growth future.
  
If you are interested, can commit enough time to read the book, and would like to join a one-hour structured discussion group in mid-January - we’d love to hear from you!
 
Please e-mail us at sustainablefinancecommunity@gmail.com with the subject “Book club”. Places will be allocated on a first-come first-served basis.
Volunteer Vacancy - Environmental & Sustainability editor at The Actuary magazine
 
FEATURES EDITOR WANTED to join The Actuary magazine's editorial team as an Environmental & Sustainability editor.
 
This position has emerged giving the successful applicant an opportunity to play a key role in the ongoing development of the IFoA’s award-winning magazine. For further information please view the job description at bit.ly/ACT2Vol .
 
Aside from enthusiasm, you will need a thorough understanding of this field and the way in which it can and will impact the actuarial profession. In addition to coming up with article ideas, you’ll need to be open to differing viewpoints, be able to assess the quality and technical competency of submissions with a view to publication, have good attention to detail and be able to work to strict deadlines.
In the news
COP26: Key outcomes agreed at the UN climate talks in Glasgow

The UN climate conference, COP26, finally took place, with expectations and tensions running high after a year-long delay due to Covid-19. In this article Carbon Brief provides an in-depth summary of all the key outcomes in Glasgow - both inside and outside of COP.

Formal negotiations
All the formal outcome texts from COP26 have now been placed onto a single webpage by the UNFCCC - which is both useful and highlights the complexity of negotiations. Key outcomes include (see more in the full article):
  • Glasgow Climate Pact. The surprise package at COP26 was the adoption of a “Glasgow Climate Pact”, a text that “requests” that countries “revisit and strengthen” their climate pledges by the end of 2022, calls for a “phasedown” of coal and sets up processes towards delivering a global goal on adaptation, higher levels of climate finance and finance for loss and damage.
  • Finance. This year’s event came shortly after rich nations acknowledged that they had failed to meet a $100bn annual climate finance target for 2020, which was set over a decade ago. This failure framed COP26 from the outset. Many of the global-south leaders who spoke during the first two days drew attention to it and delegates expressed concerns about a breakdown of trust between parties.
  • Article 6. After four years of negotiations, countries meeting at COP26 finally reached a deal on Article 6 of the Paris Agreement, which covers international cooperation including carbon markets.
Around the COP
  • Financial alliance. Wednesday of week one was “finance day” and saw the launch of the Glasgow Financial Alliance for Net-Zero (GFANZ), which said its members – some 450 firms in 45 countries – had committed $130tn towards the net-zero transition. Under the terms of GFANZ, signatories must commit to use “science-based guidelines” to reach net-zero carbon emissions by 2050 and to provide 2030 interim goals.
  • US-China joint climate declaration. The US and China stunned many observers at COP26 on 10 November by, without warning, publishing a “joint climate declaration”. The statement showed the world’s two largest CO2 emitters agreeing to join hands to address the “climate crisis” through this “critical decade” in areas including reducing methane emissions, “phasing down” coal, promoting decarbonisation, protecting forests and conducting technical cooperation.
  • Do climate pledges 'keep 1.5C alive'? For more details see the summery below: Analysis: Do COP26 promises keep global warming below 2C?
Read the article here (Carbon Brief)
What COP26’s Shift Away From Coal Means for Mongolia
 
In a coal-based economy like Mongolia, production of coal is under threat due to possible reduction in demand with countries like China, Mongolia’s main export partner, pledging to move away from coal and fossil fuel investments. Even though it is possible to reduce the usage of coal at a local level such as limiting coal usage for cooking and heating homes, the use of coal for energy grids, however, will most likely continue. Securing the financial resources to fully replace the old system of coal-fuelled power plants is a major obstacle to fully switching to clean energy by 2030.
 
To overcome the negative impacts of coal production, the country is working with European partners to limit CO2 emissions with a focus on forestry, land use, and establishing a habit of planting trees. During COP26, “over 130 countries, covering 90% of the world’s forests, have committed to halt and reverse forest loss and land degradation by 2030.” Mongolia is a signatory country to this “Declaration on Forests and Land Use.”
 
Read the article here (The Diplomat).
Investors scrutinise green claims in $80bn sustainability bond market

The market for sustainability-linked bonds has boomed to reach $80bn in issuance this year. The first deal in this sector took place in 2019, global issuance has grown almost nine-fold since the end of 2020. Sustainability-linked bonds lack the more rigorous criteria placed on green bonds. Issues do not face tight restrictions on how proceeds are used but must instead agree to ESG targets, failing which results in a step-up in interest rates. However, examples so far suggest such penalties are relatively small.
 
Proponents of sustainability -linked bonds say that the market’s fast growth heralds green debt moving into the mainstream, allowing companies to make public declarations about sustainability that investors can hold them to. However, critics argue that such expansion is more reflective of the market’s less strict requirements, allowing companies to brandish their newfound ESG commitments without having to do much work to substantiate them.
 
Read the article here (FT - paywall).
EU carbon prices hit record high after COP26

European carbon prices jumped to an all-time peak above €66 per tonne as traders bet that the outcome of the COP26 climate talks was likely to strengthen emissions markets that are seen as a key tool of decarbonisation. Carbon prices are now more than double their level at the beginning of the year and up from €55 a tonne a month ago. Traders and analysts said the outcome of the COP talks, while not as strong as some had hoped, still pointed to a trajectory whereby governments will need to see the cost of carbon rise to help push heavily polluting fuels like coal off the grid, while encouraging industry to invest in cleaner technologies. 
 
Mark Lewis at the Andurand Capital hedge fund said that “while the outcome wasn’t perhaps as strong as some had hoped, there was still a clear signal that policymakers need to get serious about carbon pricing if we’re going to see emissions falls”. Investors have been rushing into carbon in the past 18 months, believing that stimulus plans and investments in decarbonisation after the pandemic imply carbon prices will need to rise. Projects such as carbon capture and storage, green hydrogen produced by electrolysis and other green initiatives all benefit from stronger carbon prices as they make fuels like coal less competitive.
 
Read the article here (FT - paywall).
 
What we are reading
Britons want to prevent climate change, but favour expensive solutions

Recent polls asking Britons about climate change reveal a country committed to tackling global warming, but unfortunately drawn to the priciest ways of doing it. One poll found that 81% believe that an environmental disaster looms unless habits change quickly. Another revealed that 80% of over-64s are now concerned about climate change, up from 56% in 2012.
 
Economists usually favour market-based interventions such as carbon taxes, and disdain measures such as electric-car subsidies because of their inefficiency (some of the money goes to people who would have bought electric cars anyway). But ordinary Britons plainly disagree. Onward, a think-tank, reported that 50% of people were prepared to pay higher taxes in order to reduce carbon emissions, whereas 46% would pay higher prices for goods. Britons are keener still on banning things. Another poll found that people would prefer policies that restrict the number of flights they can take and the quantity of meat they can eat to policies that increase the price of flying and the price of meat. Will Tanner, of thinktank Onward, suggests that is because they believe the cost of tackling global warming should be borne by society as a whole, and general taxation strikes them as a good way of achieving that. 
 
Read the article here (The Economist).
Analysis: Do COP26 promises keep global warming below 2C?

Depending on whom you ask, the COP26 climate summit may seem like the best of times or the worst of times. On the one hand, reports proclaim boldly that limiting global warming to below 2C might finally be in reach. On the other, critics complain that modest improvements on country commitments amount to little more than “blah blah blah”. The reality is more nuanced. There has been progress made in flattening the curve of future emissions through both climate policies and falling clean energy costs. At the same time, the world is still far from on track to meet Paris Agreement goals of limiting warming to 1.5C or “well below” 2C.

COP26 negotiations have seen a flurry of new reports on what existing and new promises and pledges mean for the climate. Here, Carbon Brief breaks down these numbers, looking at what they refer to, where different groups agree and disagree on likely outcomes, and the potential impact of new long-term net-zero promises.

The analysis reveals widespread agreement between four different groups assessing the climate outcomes of COP26. They suggest that current policies will lead to a best-estimate of around 2.6C to 2.7C warming by 2100 (with an uncertainty range of 2C to 3.6C). If countries meet both conditional and unconditional nationally determined contributions (NDCs) for the near-term target of 2030, projected warming by 2100 falls to 2.4C (1.8C to 3.3C). Finally, if countries meet their long-term net-zero promises, global warming would be reduced to around 1.8C (1.4C to 2.6C) by 2100, though temperatures would likely peak around 1.9C in the middle of the century before declining.
 
Read the analysis here (Carbon Brief).
Opinion
COP26 took us one step closer to combating the climate crisis

This article draws a pointed line between the impact of the climate crisis on future generations with a child being in a preventable, imminent road accident. The onlooking adults are yet to take sufficient decisive action on climate issues, but would not hesitate to rush to save the child from the road accident. It highlights that what we effectively need is systems change rather than climate change. Systemic change goes beyond just transforming one sector or moving the country away from fossil fuels. COP increased the speed of action with at least three resets:
  • 1.5 degree Celsius is the new 2 degree Celsius, which is the front and centre of efforts
  • The third set of national efforts to reduce emissions and contribute to climate solutions is now scheduled for end of 2022 instead of waiting another five years
  • Over 100 countries pledged to reverse deforestation by 2030 latest along with $20bn in commitments of public and private money for forest protection.
 
Read the piece here (The Guardian).
Livestock conversation missing from climate talks
 
Livestock farming for meat and dairy causes 14.5% of all human-driven greenhouse gas emissions, with cattle responsible for 65% of those. As public awareness rises and alternatives to meat grow in popularity, the livestock sector is facing unprecedented pressure. Some countries are starting to act. Ethiopia has pledged to reduce emissions in part by replacing some of its non-dairy cattle with chickens, sheep and goats – which have a lower impact on the climate. Meanwhile, Denmark legislated this October that emissions in the agriculture sector must fall by between 50% and 65% below 1990 levels by 2030. But, elsewhere, commitments to reduce livestock production are rare.
 
As for policies for addressing climate change, meat has flown under the radar when compared to other sectors with high emissions, such as transport and energy. Additionally, the lack of national targets on livestock emissions is preventing private investment in low-carbon agriculture, says Jeremy Coller, CIO of Coller Capital.
 
Read the piece here (China Dialogue).
 
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Communication is at the heart of shifting mindsets on climate and sustainability issues, and is vital in highlighting and understanding steps we can take as finance professionals to implement positive change.

The purpose of Sustainable Finance Community is to encourage members to read, share and discuss content, in order to help us with this aim. We want to encourage information to flow both ways, so please get in touch by replying to sustainablefinancecommunity@gmail.com or follow us on LinkedIn and Twitter.

The weekly newsletter summarises information from different sources for the benefit of subscribers. While we take care to select articles, papers and opinions from reputable sources, we do not perform independent verification and hence these summaries should not be relied upon for any purpose. Further, the statements, opinions and conclusions that are summarised within the newsletter do not necessarily represent the views of the IFoA nor the newsletter authors and their employers.

This initiative is brought to you by the Institute and Faculty of Actuaries (IFoA) Sustainability Board (formerly Resource & Environment Board). The Sustainability Board is a group of voluntary actuaries working with the IFoA to encourage change within finance. We work alongside - but separately to - the IFoA and as such this is not an IFoA communication. Find out more about the IFoA Sustainability Board here.

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