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COP26 climate conference should bring more certainty for investors

Investors are closely watching the upcoming COP26 climate change conference and hoping for certainty around net zero targets. Regnan’s Maxime Le Floch explains what to look for

WHAT’S will investors be looking for from the much-vaunted United Nations COP26 Climate Change Conference starting in a little over a week?

Greater certainty, says Maxime Le Floch, investment analyst with Regnan’s impact investment team.

Le Floch wants to see “countries arrive in Glasgow and have targets and commit to net zero. Countries arrive with a plan to reduce emissions. The most important thing is the individual country’s plans.”

Forums such as COP26 allows nations to outline how they plan to get to net zero emissions, theoretically by the middle of this century.

Those pathways give investors greater certainty on the rules they face in the future. And that certainty is good for investing.

More countries have made commitments in recent months, including China, Japan and South Korea.

Others, including Australia, are still debating the politics.

In Australia, the federal coalition is yet to outline its ambitions, in part because of disagreements between the Liberal and National parties. However it’s likely that Prime Minister Scott Morrison will have some sort of offering by the time he leaves for Glasgow. 

Game theory

Global conferences like COP26 involve plenty of game theory, Le Floch says.

“If countries turn up and commit, or have previously announced their intentions, that’s a positive for other countries to commit to reducing greenhouse gases.

“That’s why China already committing to net zero emissions by 2060 is such a big deal,” he says.

Nations that provide concrete evidence of a pathway to reducing emissions are enabling greater investment, Le FLoch says.

It might be subsidies for electric vehicles, or carbon offset schemes or changed taxation arrangements.

Find out about

Regnan Global Equity Impact Solutions Fund

Those factors become part of the investment decision, albeit not the central reason for buying or selling.

“As impact investors, we don’t rely on regulation, and we’re not waiting for it to happen,” says Le Floch, who is part of a four-person team managing Regnan Global Equity Impact Solutions Fund.

“There has to be an underlying economic dynamic to unlock value, without any change to regulations.

“But we do recognise that regulation drives adoption and creates an environment in which laggards are forced to improve and leaders and green innovators can thrive.”

He points to European offshore wind subsidies which were initially generous as part of a push to achieve carbon neutrality. But they have been phased out in some jurisdictions as offshore wind generation becomes cost effective. Investors in wind farms had to look well beyond the short-term subsidies.

Stumbling blocks to watch out for

The optimism of a global event like COP26 is well founded, but it can easily become unstuck.

“Typically, in a negotiation like this, the stumbling block is the distributive impact of climate change, both in terms of mitigation and adaption. Who is responsible for what, and what should we expect from rich and poor countries,” Le Floch says.

And conferences such as these don’t operate in isolation.

The International Energy Agency earlier this month forecast a need to triple investment in renewable energy to ensure fossil fuels were replaced without triggering an energy crisis.

“There’s a big gap at the moment and the IEA is explaining what’s needed to get on track. To accelerate that you need incentives and conferences like COP26 can help do that.”

It’s been six years since the Paris Accord.

That treaty was the first legally binding agreement to limit global warming to well below two degrees — preferably to 1.5 degrees Celsius — compared to pre-industrial levels.

As part of that, 196 parties agreed to reach peak greenhouse gas emissions as soon as possible and achieve climate neutrality by 2050.

This time around the UN Climate Change conference is being hosted by the UK in partnership with Italy.

It will take place from October 31 to November 12.

About Maxime Le Floch

Maxime is an analyst with Regnan’s impact investment team. He focuses on Regnan Global Equity Impact Solutions Fund. Maxime has more than 10 years of experience in sustainable investment. Before joining Regnan he was an investment analyst with Hermes where he helped launch and manage the Hermes Impact Opportunities Equity Fund.

About Regnan

Regnan is a responsible investment leader with a long and proud history of providing insight and advice to investors with an interest in long-term, broad-based or values-aligned performance.

Building on that expertise, in 2019 Regnan expanded into responsible investment funds management, backed by the considerable resources of Pendal Group.

The Regnan Global Equity Impact Solutions Fund invests in mission-driven companies we believe are well placed to solve the world’s biggest problems.

The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Both funds are distributed by Pendal in Australia.

Visit Regnan.com

Find out about Regnan Global Equity Impact Solutions Fund

Find out about Regnan Credit Impact Trust

For more information on these and other responsible investing strategies, contact Head of Regnan and Responsible Investment Distribution Jeremy Dean at jeremy.dean@regnan.com.

Regnan is a standalone responsible investment business division of Pendal Group Limited (Pendal). Pendal is an Australian-listed investment manager and owner of the J O Hambro Capital Management Group. Regnan’s focuses is on delivering innovative solutions for sustainable and impact investment, leaning on over more than 20 years of experience at the frontier of responsible investment. “Regnan” is a registered trademark of Pendal. The Regnan business consists of two distinct business lines. The investment management business is based in the United Kingdom and sits within J O Hambro Capital Management Limited, which is authorised and regulated by the Financial Conduct Authority and is registered as an investment adviser with the SEC. “Regnan” is a registered as a trading name of J O Hambro Capital Management Limited. The investment team manages the Regnan Global Equity Impact Solutions (RGEIS) strategy, which aims to generate market-beating long-term returns by investing in solutions to the world’s environmental and societal problems. The RGEIS strategy is distributed in Australia by Pendal Fund Services Limited. Alongside the investment team is the Engagement, Advisory and Research (EAR) team of Pendal Institutional Limited in Australia, which has a long history of providing services on environmental, social and governance issues. While the investment management team will often draw on services from and collaborate with the EAR team, they remain independent of the EAR team and are solely responsible for the investment management of the RGEIS strategy. The Regnan Credit Impact Trust (available in Australia only) invests in cash, fixed and floating rate securities where the proceeds create positive environmental and social change. Regnan Credit Impact Trust is distributed in Australia by Pendal. This article has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and the information contained within is current as at August 18, 2021. It is not to be published, or otherwise made available to any person other than the party to whom it is provided. PFSL is the responsible entity and issuer of units in the Regnan Global Equity Impact Solutions Fund (ARSN 645 981 853). A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1800 813 886 or visiting www.pendalgroup.com. You should obtain and consider the PDS before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This article is for general information purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information in this article may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information in this article is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections contained in this article are predictive and should not be relied upon when making an investment decision or recommendation. While we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.

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