COP26: Amplifying the voice of investors.
The vital role of stewardship in the last stand against climate change.
This content was created in partnership with Citywire and written by Kathrin Schindler.
Companies that are planning and provisioning for this change are the investment opportunity and sit at the convergence of returns to investors and society. That creates structural change in the economy.
Mitch Reznick, CFA,
High hopes, moderate expectations – that’s how Mitch Reznick, head of research and sustainable fixed income at Federated Hermes, summarises his view on COP26.
While he’s pleased with the announcements on deforestation and funding developing markets, Reznick believes there’s still a long way to go: ‘I do get a sense of renewed energy and enthusiasm but so far, governments around the world have underdelivered on what they promised.’
He sees COP26 as the starting point of the most important decade in the climate crisis, not least because time is running out: ‘It’s going to be about delivering the promises through action and that’s challenging.’
Reznick doesn’t make bones about COP26 being ‘a lot of bark’, but he also acknowledges that implementing changes in their entirety is difficult – especially if some governments don’t support things like the decarbonisation process.
‘Some large players not participating – either because they’re acting as free riders or because of self-preservation reasons – can make it harder to achieve the goals of the conference,’ he warns.
The summit also demonstrates that governments are ‘fully embracing’ the idea that they can’t facilitate change on their own. That spells opportunity for investors. ‘It will require massive amounts of participation from private capital markets. Over time, there is alpha to be made from that,’ Reznick notes.
When asked whether COP26 has tangible effects on his day-to-day work, he reacts with an enthusiastic ‘a hundred percent, absolutely’. If the commitments made at the conference translate into regulatory change, businesses will have to adapt to avoid punitive effects.
‘There are going to be winners and losers. Companies that are planning and provisioning for this change are the investment opportunity and sit at the convergence of returns to investors and society. That creates structural change in the economy.’
It also creates change in the wider society. According to Reznick, it’s about time we rethink the way we live, consume and invest: ‘We have to realise that we can’t enjoy everything the way we have in perpetuity. That means small sacrifices from everybody.’
But as he also points out: ‘If governments have to choose between providing energy to grow the economy and going green today, in the short-term they are understandably going to choose using sources of carbon-intensive energy.’
The pandemic has made that very clear. Its residual effects have caused a spike in demand at a rather inconvenient time: energy inventories were at record lows and weather patterns affected by climate change placed challenges on renewable energy providers.
‘In the short-term, all of that has forced governments to lean on sources of energy that are carbonising,’ Reznick says. ‘We can already see that CO2 emissions are back on the rise. Covid has led to this energy crisis we’re in.’
Reznick is concerned that the pandemic has prompted a step backwards in the green transition, as renewables haven’t fully filled the vacuum that the withdrawal of coal and other polluting energy sources has created.
That makes conferences like COP26 even more important. Time will tell if the pledges made in Glasgow will come to fruition, but they are a start. Or as Reznick puts it: ‘It gives me some optimism that these promises will create a renewed effort.’
The International business of Federated Hermes was present at COP26 in Glasgow in two significant capacities.
The group’s CEO Saker Nusseibeh CBE spoke during the World Leaders Summit, underlining Federated Hermes’ commitment to halt and reverse deforestation and land degradation by 2030 and to announce its joining of the Natural Capital Investment Alliance which was created by HRH The Prince of Wales under his Sustainable Markets Initiative. The initiative aims to accelerate the development of Natural Capital as a mainstream investment theme. Both commitments are important steps to meeting the goals of the Paris Agreement.
Federated Hermes also hosted its own ‘Further, Faster Conference’ at their ‘Fringe Festival’ site in Glasgow on land owned within its sustainable property portfolio. The two-day event welcomed investors, fund managers and experts from all areas of sustainability to exchange ideas on how to address the three interlinked emergencies of Climate, Nature and Social Injustice. Click here to see more details on the event.
The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. The views and opinions contained herein are those of the author and may not necessarily represent views expressed or reflected in other communications. This does not constitute a solicitation or offer to any person to buy or sell any related securities or financial instruments.