COP26 validates the increasingly investment-friendly backdrop which will enable the private sector to direct enormous amounts of capital into clean energy

The United Nations Climate Change Conference (COP26) concluded in mid-November and the general perception is that it was a bit of a disappointment, albeit with a few bright spots. The negatives included:

• The leaders from two key countries (Russia and China) did not attend in person, thereby damaging the credibility of the conference;
• The fact that the conference did not result in commitments from countries to reduce carbon emissions fast enough or to a level which would have the potential to limit global warming to 1.5°C; and
• The well-publicised drama around India and China (the world’s two largest producers and consumers of thermal coal) successfully diluted a key conference pledge to ‘phase down’ instead of ‘phase out’ (as was originally sought) the usage of coal in their economies.

Notwithstanding, there were positives such as:

• India’s pledge to reach net zero emissions by 2070 (its target of 500GW of renewable electricity by 2030 will require it to more than triple its current installed capacity and double its rate of installation);
• The commitment from a coalition of 19 countries (including the United States) to establish at least six zero emissions ‘green corridors’ by 2025 to accelerate the maritime industry’s transformation to clean energy (global shipping accounts for c.3% of global emissions, equivalent to an economy the size of Japan); and
• Attending countries committed to revisiting their emission reduction targets annually, thereby creating an annual catalyst for global pressure to increase the ambition of these targets (particularly 2030 commitments).

Our key observation is not about any specific commitments but rather the profile of the conference’s attendees which we believe foreshadows the rapidly increasing priority that these issues have on the global agenda. We recall that the prior conference held in 2019 was attended mainly by environment ministers, scientists, and activists. Two years later, global business leaders, financiers and the elected leaders and bureaucrats holding the purse strings of the world’s largest economies were all in attendance. The conference also reinforced the almost complete acceptance by national and business leaders that the transition to clean energy is irreversible and provides an intense global focus on the opportunities that this transition represents.

This really excites us because it is more evidence of the trajectory of government policy (which amounts to a global mandate for clean energy) and the creation of an extremely investment-friendly backdrop for clean energy which will enable the private sector to direct enormous amounts of capital into the infrastructure of renewables, energy storage, zero emission transportation and energy efficiency.