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Portfolio perspectives | Podcast - 16:07 MIN

Talking Heads – ‘Time to be serious about climate action financing’

Daniel Morris
2 Authors - Portfolio perspectives
25/09/2023 · 6 Min

Investors can help to speed climate mitigation and adaptation measures by allocating more and more actively to the protection of ecosystems and natural carbon sinks as well as other pro-climate fields, Thibaud Clisson, Climate Change Lead, tells Chief Market Strategist Daniel Morris in the wake of the latest Climate Week NYC and ahead of December’s UN COP28 meeting.  

Given the likelihood of the ‘Paris’ 1.5C cap on the global temperature rise being missed, Thibaud calls on investors to engage more forcefully with policymakers and corporates on greenhouse gas reduction. They should demand tangible and short-term action to address the biodiversity and climate crises. With GHG emissions still growing, climate change events occurring more often and some governments delaying climate action, there is more to do for stakeholders including investors.

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Read the transcript

This is an article based on the transcript of the recording of this Talking Heads podcast

Daniel Morris: Hello and welcome to the BNP Paribas Asset Management Talking Heads podcast. Every week, Talking Heads will bring you in-depth insights and analysis through the lens of sustainability on the topics that really matter to investors. In this episode, we’ll be discussing Climate Week, New York City. I’m Daniel Morris, Chief Market Strategist, and I’m joined today by Thibaud Clisson, Climate Change Lead for BNP Paribas Asset Management. Welcome, Thibaud, and thanks for joining me.

Thibaud Clisson: It’s great to be here today.

DM: We’ve just finished Climate Week in New York, the last global event on climate before COP 28 – the UN Climate Change Conference – in December in Dubai. One key discussion was progress on meeting the Paris Agreement objectives. Could you remind us what the Paris Agreement is and update us on where we stand on reaching the agreement’s goals?

TC: The Paris Agreement is a legally binding international treaty on climate change, adopted in 2015. Its goal is to hold the increase in global temperature to well below two degrees Centigrade above pre-industrial levels and try to limit it to 1.5 degrees.

We are far from being on the right path. On the plus side, there is tremendous commitment, with  more than 90% of global GDP covered by net zero commitments. We have 5 900 companies taking climate action, with 3 300 companies that have set science-based greenhouse gas reduction targets. In 2022, energy transition investments for the first time matched fossil fuel investments, according to Bloomberg New Energy Finance.

But on the negative side, greenhouse gas emissions are still rising. Climate change is becoming an increasing reality . Think of this summer, with fires in Canada and Hawaii, and floods in Libya. These were are all linked to climate change, according to scientists and governments. And yet look at the decision by the UK government to postpone some of its main climate decisions when the world – eight years since the Paris Agreement – has never consumed so much fossil fuel.

The most optimistic climate scenarios, such as the inevitable policy response, are pointing to an increase in global temperature of 1.7 or 1.8 degrees, and that’s if everything that’s been announced by governments is implemented.

The latest report from the International Panel on Climate Change says the current level of commitment by governments make it likely that global warming will exceed 1.5 degrees this century. As a reminder, when we talk about limiting global warming to 1.5 degrees, we mean by the end of this century, but the IPCC is telling us we will exceed that goal well before then and that based on the current picture, it will be hard to limit warming to below two degrees. One thing the IPCC highlights is that finance flows fall short of the levels needed to meet climate goals across all sectors.

So there are mixed views on where we stand regarding the Paris Agreement goal. I’m not optimistic at this stage.

DM: Do you think the ambition that’s embedded in the Paris Agreement will be maintained? And will we see a concrete roadmap come out of COP 28, particularly in terms of climate finance?

TC: The result of the first global stocktake will be announced [at COP 28]. It assesses progress towards achieving the Paris Agreement goals. That will give us a clear view on where we stand in terms of greenhouse gas emissions and reductions achieved so far. A consensus is emerging that the 1.5 [degree] target is likely to be missed. So, there should be a call for an acceleration in climate action everywhere.

Other recurring topics in COP discussions include the funding against loss and damages. Last year saw a political agreement on the need to create a fund to compensate countries for loss and damage arising from climate change. There has been little progress so far. So we hope there will be some concrete announcements around damage funding.

Another key topic could be the financing of adaptation [helping countries adapt to the impact of severe climate events].

Previous COPs have failed to make clear announcements on the phaseout of fossil fuels. Maybe this year will be different. One positive signal is that the European Commission has been clear that it will push for a global deal on phasing out fossil fuels. The COP 28 presidency has called for a tripling of renewable energy generation, a doubling of energy efficiency and a doubling of hydrogen production by 2030.

So perhaps the final declaration will be more concrete on the need to phase out or phase down fossil fuels in general, not only coal.

DM: What measures are needed to accelerate the transition away from fossil fuels, and what can investors do?

TC: As investors, we can address the stakeholders that are key to achieving the climate goals, the first being policymakers. We can be more active in our engagement with policymakers when we buy government bonds. We can pursue a dialogue with them, respond to consultations, and be vocal on our expectations.

BNP Paribas Asset Management is involved in collaborative sovereign engagement on climate change to help make sure that investors work together to support governments to take all possible steps to mitigate climate change in line with the Paris Agreement.

On the corporate front, there are thousands of companies taking climate actions and committed to greenhouse gas reduction to meet science-based targets, but so far we haven’t seen a clear inflection on greenhouse gas reduction globally. This commitment needs to be translated into concrete actions.

Here again as investors, we need to engage with companies; we can do this collectively through initiatives such as Climate Action 100+. But we can also vote for climate action during general meetings. By filing climate-related resolutions, we can vote on board nominations and approval of the accounts, when we consider companies not to be transparent on their greenhouse gas emissions.

Beyond engaging with governments and companies, we can make a clear decision on how we invest for our clients. We need to ‘go green’ in every asset class, not only listed equity, but also private markets, which have grown substantially in recent years, and in bonds, too.

We know the climate crisis goes hand in hand with the biodiversity crisis. We believe that, as investors, it’s time to start addressing both crises together. That’s why BNP Paribas Asset Management recently acquired a sustainable forest and agricultural company. For us, this makes a lot of sense as it means we can offer clients exposure to ecosystem benefits and contribute to the protection and enhancement of natural carbon sinks.

In these ways, we try to go further and explore new possibilities, to be serious about financing the energy transition and fighting climate change.

There needs to be an increase in financing inflows to adaptation, climate change and mitigation solutions, which should also help address the North-South gap. As investors, we need to offer financial solutions for that.

Adaptation will be one of the key topics during COP 28. If we are to actively provide solutions for financing climate adaptation, innovation will be crucial, and as investors we have a key role to play in that.

DM: Thibaud, thank you very much for joining me.

TC: Thank you, Daniel.

Disclaimer

Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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