COP 26: the major challenges

26 October 2021

By Gaël Binot and Hervé Chatot, Emerging Markets Fixed Income Manager and Cross Asset Manager respectively, La Française AM

Six years after COP21 in Paris, the next United Nations conference on climate change - COP26 - will be held in Glasgow next month. The conference will be held against the backdrop of the energy crisis and the increase in extreme weather events which are becoming ever more devastating. Climate change now stands squarely at the heart of the political agenda and is also becoming more of a priority for investors.

The latest report from the IPCC (Intergovernmental Panel on Climate Change) published in August calls for the urgent need to reduce greenhouse gas (GHG) emissions by 2030. The measures previously taken have proven insufficient to date.

The stakes are therefore relatively high. This COP 26 certainly promises to be the most important conference since its inception. Actions taken or not taken will be decisive in giving humanity a chance to limit global warming to 1.5 °C and avoid a major climate catastrophe.

Few countries have kept their promises and stuck to the targets of the Paris Agreement in 2015. Under current policies, global warming will reach about 3 °C. Although a significant number of countries have set a target of net zero GHG emissions by 2050, progress remains sorely lacking.

In this context, can we expect any significant step forward? In our view, a variety of issues need to be addressed.

Firstly, countries must strengthen their commitment to reduce GHG emissions by 2030 in order to limit global warming to 1.5 °C. The emphasis must be placed on making up for time lost.

According to Climate Action Tracker, almost all developed countries need to step up their GHG emission reduction targets as quickly as possible. It is vital to implement more ambitious nationally determined contributions (NDCs) in order to meet their targets. Today, 68 countries (responsible for 61% of global GHG emissions) have adopted a target of net zero emissions but only 80 countries (responsible for 36% of global GHG emissions) have updated their national contributions with more ambitious targets according to ClimateWatch.

While some countries such as the United States, Canada, the United Kingdom, along with the European Union, have reviewed and officially submitted more ambitious NDCs, certain large economies, such as Australia, Indonesia, Mexico, Brazil, Russia, have yet to improve their climate targets.

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