Loss and damages and future funding
A lot of headlines were around the political agreement on loss and damages in relation to how wealthier nations can help shoulder the transition bill for developing nations. Agreement was reached to establish a fund to support vulnerable countries and make them more resilient to the adverse effects of climate change on nature and people. However, money is yet to be allocated, with COP 27 simply establishing the Transitional Committee working group with the intention of finalising an agreement ahead of COP 28 next year.
Figure 1: required finance for a 1.5 degree transition
- US climate envoy, John Kerry, launched the Energy Transition Accelerator to assist with the financing of renewable energy construction in developing countries by private entities. Though still in its infancy, the goal is to produce verified greenhouse ga emission reductions that corporations with Science Based Targets initiatives could buy as credits. These would effectively pay for the decarbonisation that will occur as a result in developing countries.
- The private sector deepened its collaboration on innovative solutions. Under the Breakthrough Agenda, 25 actions were developed to speed up decarbonisation across power, road transport, steel, hydrogen and agriculture sectors by COP 28, with the buildings and cement sectors added next year10. These initiatives are of critical importance because they allow data sharing, the setting of standardised frameworks, and the financing of pilot projects and tools that will accelerate the learning curves of sectoral decarbonisation technologies which will ultimately see cost declines and spur investment.
- We expect the resumption of China/US climate talks after their suspension last summer. This could help ease supply chain issues on renewables components and get China on board with more climate actions – for example by signing up for the Global Methane Pledge. The Methane Alert and Response System (MARS) was unveiled which will help drive progress on the methane pledge made at COP 26 to reduce methane emissions by 30% by 2030. Methane emissions are responsible for 40% of climate warming11 and the system will use satellite imagery to quickly detect methane leaks, notify the relevant party and track the subsequent mitigation process. We expect increasing focus and pressure on those sectors generating most methane leakage, namely oil and gas and agriculture.
Climate transition engagement: Climate policies
Company WEG SA
Sector and country: Utilities, Brazil
Why we engaged ?
WEG is a global industrial company offering solutions for solar and wind power deployments and for the electrification of mobility. Given its range of decarbonisation offerings across the US, Europe, South Africa and India we wanted a better insight on the strategy and business trends across these markets, as well as on the company’s own plans to decarbonise.
How we engaged ?
A call was organised with the Head of Investor Relations by a Columbia Threadneedle portfolio manager on the emerging markets desk and a Responsible Investing thematic analyst. It was attended by other portfolio managers.
What we learnt ?
The call provided valuable insight into WEG’s unique business versus its peers and its wide range of offerings in electric mobility and solar and wind deployments. The meeting also provided visibility on the company’s own approach and plans towards net-zero through it naming a new director on ESG (environmental, social and governance) strategy.
We took a positive view on the competitive advantage of the company and the strong growth potential of its decarbonisation offerings. In addition, its global presence provides robust diversification and growth potential. We confirmed the company is aware of the steps needed on its ESG journey and on setting net zero targets. We encouraged the company to continue making progress on emissions measurement and decarbonisation planning and agreed to follow up with the new ESG director to monitor progress.