COP26 and carbon reduction - Invesco

COP26 and carbon reduction: lessons from the market.

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... Ask someone if the 2021 United Nations Climate Change Conference (COP26) was a success or a failure and you’ll likely get different answers. While the commitments made at the conference have brought us closer to net zero, the promise of keeping global temperatures below 1.5°C remains some way off, with current commitments estimated to put us on course for 2.4°C.

When it comes to the energy sector, the glass half-full camp will point to the positive shift whereby fossil fuels have, for the first time, been directly named as contributing to climate change. Those on the pessimistic side will point to the eleventh-hour watering down of the communique changing 'phasing out' for 'phasing down' coal production. But how are markets responding to COP26 and will the economics, rather than the politics, ultimately be more decisive?

While it’s still early days, initial evidence of how coal and fossil fuel indices have performed over the period would indicate markets are increasingly alive to the risks inherent in financing companies in these sectors, compared with clean energy companies that have outperformed the market. The EU’s carbon price also rose to well over $60/tonne, signalling that the market may be expecting tighter regulation going forward.

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