Helena Viñes Fiestas, BNP Paribas Asset Management’s (BNPP AM) Deputy Global Head of Sustainability and Head of Sustainability Research and Policy, attended the recent 24th Conference of the Parties to the UN Framework Convention on Climate Change (COP24) in Katowice, Poland, with colleagues from BNPP AM’s Sustainability Centre. Here, Helena shares the headline takeaways from this important event, at which BNPP AM had the opportunity to share the progress it has made in helping to fight climate change.
- The negotiations
This year’s meeting of the UN Conference of Parties was the most important gathering on climate negotiations since COP21 in Paris. The main aim was to have the Parties produce and agree on a rule book that will determine how the Paris Agreement will work. After much tension, agreement was reached at the end of the conference and – although far from perfect – the resulting rule book means the Paris Agreement is still on track.
The rule book is intended to put into motion the Paris Agreement on climate change and will be implemented from 2020. It obliges countries to communicate to the rest of the world what they are doing to reduce emissions and to meet their nationally determined contributions (NDC) targets. It determines the specific features the NDCs contain, the information they should provide, and technology transfer to those countries in need. Additionally it describes how countries are required to calculate their greenhouse gas emissions as well as how they should be reported and verified. Finally, it specifies the manner in which financial flows should be accounted for.
The poorest countries secured much sought-after assurance on financial support for their efforts to curb emissions and to adapt to climate change as well as payment for damage that has already occurred.
The downside is that there was no agreement on raising ambitions on climate change. Other less positive or unachieved outcomes included:
- No agreement on a governance framework for a new carbon market under the auspices of the Paris Agreement because of major discrepancies between Brazil, which wants to allow for its unused carbon credits earned under the Kyoto Protocol, and developed countries, which claim this is unfair. These discussions were deferred to 2019.
- Some countries, championed by India, expressed their discontent at the lack of “real equity in the global stocktake* decision”. According to these countries there has been insufficient consideration of ‘equity’ (i.e. 'equity' in the sense that developed countries should take the lead while developing and lest developed countries also take action to combat climate change but in accordance with their capabilities) in conducting the global stocktake. An equitable approach was a stipulation in Article 14 of the Paris Agreement. However, in the view of India and other countries, it has not been fully taken into account in the decisions taken over the process and technical assessment.
- Adaptation was not given the expected prominence that developing countries called for. They claimed that mitigation has been at the centre of negotiations.
Why is the rule book important to investors? As many of us start transitioning to a low-carbon economy and actively calling the companies we invest in to do likewise, we want clear guidance on international and national trajectories; the sector targets imposed by national governments; their climate finance policies and the speed of transition. We also need visibility and understanding on climate scenarios so that we can assess climate-related risks, not least the physical risks.
- The champions: the EU, Canada, Costa Rica, Argentina, New Zealand, Norway and a number of small-island nations have joined forces to create the ‘High Ambition Coalition’, which is pushing hard for a robust rule book.
- The European Commission shared its 2050 Net-Zero GHG Climate Strategy, which shows real leadership.
- The urgency: the Intergovernmental Panel on Climate Change (IPCC) report made clear that there are strong benefits to limiting the rise in global temperature to 1.5°C rather than 2°C. The many benefits of this tighter target include “roughly 10cm less in sea level rises, significantly fewer ice-free Arctic summers and half the biodiversity loss.” There are also human benefits such as less impact on livelihoods, health and food security. The IPCC report says the world has only about 12 years to avoid 1.5°C of warming above pre-industrial levels, which is one of the goals of the Paris Agreement. Even so, the US, Saudi Arabia, Russia and Kuwait objected to the conference’s "welcoming" of this IPCC report.
- A socially responsible energy transition, the so-called was at the heart of the COP:
COP 24 took place in Katowice, Poland, which has long been a coal-mining area. As the economic conversion of the city has already begun, the Polish Presidency of the COP wanted to put the Just Transition Declaration (on the social aspects of the transition to a low carbon economy) at the heart of the debate from the outset. The key question: how can policies aimed at reducing dependency on fossil fuels, particularly coal, be both environmentally effective and socially equitable? The Solidarity and Just Transition Silesia Declaration was launched by the Polish Presidency on the first day, with support from 49 governments.
France’s “gilets jaunes” were present in discussions at COP24. They were a reminder that social justice ought to be at the core of all measures and that the social impacts of the transition will have to be carefully taken into account. There was a shared perception that the benefits of fighting climate change in terms of economic gains, higher employment rates and better health have not been conveyed properly.
This is why BNPP AM signed and committed to the Just Transition Declaration by signing the related Investor Guide that was launched with the backing of institutions with USD 5 trillion in assets under management (AUM).
- Sustainable Finance. While the European Commission (EC) Roadmap on Sustainable Finance received praise, a growing number of other countries and regions – such as Canada, China and Morocco – are also putting in place roadmaps to drive sustainable finance. The conference provided a reminder that there is now an internationally consistent framework through the recommendations of the Task Force on Climate-related Financial Disclosures (TFCD) for companies and financial institutions to report publicly on their activities.
- What the investment community is doing. Nearly 400 investors representing USD 32 trillion in AUM are taking action on one or more areas of the globally coordinated Investor Agenda: low-carbon investments and phasing out coal, corporate engagement, policy advocacy and investor disclosure. BNPP AM is working on all four of these crucial elements.
Capital allocation. Climate finance was one of the key areas of interest at COP24, with the role of the investment community repeatedly highlighted. One of the best received announcements was by the New York State retirement fund, which has achieved a 30% increase in its allocation to sustainable investment, taking the total to USD 10 billion.
Scenario analysis. There was much discussion on how to conduct scenario analysis and assess companies’ scenario planning. BNPP PAM’s public commitment to align its portfolios to the Paris Agreement, and the analysis it is doing, were very well received.
Climate Action 100+ (in which BNPP PAM is a leading voice). Shareholder engagement is delivering real results in terms of companies shifting their climate strategy, with a joint statement from Shell and leading investors providing a powerful example that activism can deliver real change.
Shareholder resolutions. 62% shareholder backing of a climate change resolution, against the board's advice, at ExxonMobil’s 2017 AGM continues to make the headlines. We were one of the co-filers. Our voting policy has also been praised for its alignment to our climate change strategy.
- Companies’ headlines. Some of the best received were from Climate Action 100+ focus companies: Shell announced its carbon-reduction plan, while US electric power company Xcel Energy and global shipping giant Maersk announced that they would cut their carbon emissions to zero by 2050.
On the downside, trade associations including Business Europe continue to hamper ambitions and pass all responsibility to governments despite their climate-friendly statements. Their position on the energy transition is “out of fashion”. During a panel organised by the EC, the trade associations insisted on the need to support R&D and to “test technologies”. They seem to argue that only technology will get us there, that the abatement of greenhouse gases and the transformation of our economic model are less relevant. In sharp contrast, the EC 2050 strategy takes into account only existing technologies and a ‘conservative’ outlook of market innovation.
- Other key players. The multilateral development banks (MDBs) have united under a common framework to increase their flows of finance to support low-carbon and resilient development. And 20 of the world’s top central banks and regulators have come together in the Network for Greening the Financial System (NGFS) in the face of climate shocks. Even so, there was a feeling that central banks and government treasuries were absent from the discussion on how to scale up green finance and how to raise countries’ ambitions when setting reduction targets.
The above-mentioned securities are for illustrative purpose only, are not intended as solicitation of the purchase of such securities, and does not constitute any investment advice or recommendation.
*Article 14 of the Paris Agreement requires the signatories to periodically take stock of the implementation of the Paris Agreement and to assess collective progress towards achieving the purpose of the Agreement and its long-term goals. This process is called the global stocktake.
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