In the next few years, there will be a profound change in the way people think about this planet, their place on it, and their relations with each other. The change will have huge consequences for all aspects of our way of life, including investment.
One area that often gets overlooked is the connection between social inequality and climate change. The most vulnerable often bear the worst burdens from environmental degradation as well as from the pandemic. Examples range from the landmark ruling in the Ella Kissi-Debrah case, where the coroner returned air pollution as cause of death given the proximity of her home to the South Circular Road in London; to fuel poverty in the Texas big freeze; to climate migration factors; to the effects of failures in tailings dams on indigenous communities; to the Flint water crisis; and to the severe droughts across many regions in recent years. There are many examples of intersectionality between climate and social well-being. So we think sustainability frameworks ought to go beyond what a company sells and also examine corporate behaviour.
The pace of change in social policy has historically been slower than in climate change, but the COVID pandemic has brought inequality issues to the fore. Most recently, on 28 April, the Biden-Harris administration announced a transformational plan of US$1.8 trillion in support for American families and children. With one in five children living below the poverty line in the US (according to the OECD’s definition), this is an urgent bill from a social equality perspective. The United States has also lagged other developed nations in labour policies, particularly those which support female participation in the workforce. COVID has made this problem worse, causing a US$64 billion loss in women’s wages and economic activity per year. The US has for decades been the only major developed market economy where there is neither federal paid parental nor sick leave. There is a lot of catching up to do, and companies already leading on these issues, building inclusive workforces and that support greater economic participation, are leaders in delivering a more sustainable world.
While humans have lived in balance with nature for most of their relatively short history with civilisation emerging about 6,000 years ago, it was not until the industrial revolution, a mere 200 years ago, the quantity of greenhouse gases (mainly carbon dioxide and methane) emitted due to human activity became too great for plants to absorb, and so it stayed in the atmosphere, trapping heat. The effect was small at first but has been accelerating. Today humanity adds around 50 billion tons of greenhouse gases into the atmosphere each year. To avoid the worst effects of climate change that needs to be reduced to zero on a net basis, so that emissions are entirely balanced by sinks.
The world’s governments understand this, which is why in 2016, 190 of them agreed, under the Paris Accord, to set about accomplishing net zero emissions by 2050. After several years of backsliding, the world is now starting to get back on track. One of the most important elements of this renewed momentum is the issue of a Just Transition and the need for climate negotiations to ensure that climate action does not inadvertently perpetuate or even worsen global inequalities.
In September 2020, China surprised the world by announcing it would reach peak carbon emissions by 2030, and net zero emissions by 2060. Although slower than the Paris Accord’s target of 2050, it is a significant step, given China’s emissions of carbon are the highest in the world.
In April 2021, there was a landmark agreement between the US and China on climate change, following meetings between US Special Envoy on Climate Change John Kerry and his Chinese counterpart Xie Zhenhua. The agreement’s being signed on Chinese soil, in Shanghai, was significant. China and the US are the world’s two largest emitters of carbon, and for them to reach agreement, despite their other differences, smashes bottlenecks of old.
US President Joe Biden’s virtual Leaders Summit on Climate on 22-23 April was attended by 40 world leaders, including President Xi Jinping, Prime Minister Narendra Modi, President Vladimir Putin, and Prime Minister Yoshihide Suga. The summit was notable for its harmony: the world’s leaders recognise that facing the threat of climate change is a moral imperative cutting across national divisions.
At the summit, Biden announced steeper cuts in US carbon emissions, with a new US target to achieve a 50 to 52% reduction from 2005 levels by 2030. Biden’s policy is of course a reversal of that of the previous administration, but it is also an acceleration of the Obama administration’s plan of a cut of 26-28% by 2025. The EU plans to cut carbon emissions by 55%, compared to 1990 levels, by 2030.
The UN Climate Change Conference (COP26), scheduled to take place in Glasgow in November 2021, should provide further harmonisation and action. The world may finally be waking up to the existential threat posed by climate change, and the vital importance of getting climate policy right over the next few years.
There is also the UN COP15 for the Convention on Biological Diversity (CBD) later this year in China, that will consider how the world can better protect our natural capital, which more than half of global GDP is reliant upon. Industry is waking up to the need to better protect our planet. We look to invest in those companies that are leading this transition.
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