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COP a load of this

An initial Google search around Anglo-Italian partnerships through time is surprisingly sparse. Yes, there are plenty of references to the influence of the Romans on Britain, and King Henry VIII’s break with Rome and the Catholic Church remains one of the most far-reaching events in English history. However, a quote from one article we found, namely ‘Few people tend to bring up Italy and Britain in the same sentence nowadays on topics outside of football’ rather sums up the results. This said, the same article did take us to a story about the formation of the Torino Football & Cricket Club in 1887 and its Italian founder, who had played both sports, thanks to a strong British presence in the textile industry of Northwest Italy. For those of you who know us, you will understand this was something we both found interesting!

The prompt for us to be thinking about Anglo-Italian partnerships is this month marks the one year countdown to the Covid-delayed ‘COP26’, now taking place 1-12 November 2021 in Glasgow. The UK, in partnership with Italy, will be hosting the event. Earlier in the year, each country will also host summits of the G7 and G20 respectively. Both countries are, therefore, very well placed to set the international agenda as the world is – hopefully – able to start pivoting away from managing the pandemic crisis, to address other equally pressing issues.   

So, what is COP?

COP stands for ‘Conference of the Parties’ and is the annual summit of the United Nations’ climate body. COP26 will be attended by up to 200 world leaders, who will discuss how to address the climate crisis by limiting greenhouse gas emissions and restricting the rate the world is warming. Next year’s conference is the most significant climate summit since COP21 in Paris 2015, when world leaders made the landmark commitment – the so called Paris Accord – to restrict global temperature rise to 'well below' 2 degrees C above pre-industrial levels, and ‘to pursue efforts’ to limit warming to 1.5 degrees C. This COP takes place five years after this undertaking, and represents the first opportunity for countries to upgrade their pledges on tackling climate change at a summit; the quest for ‘Net Zero’ will be the central theme.

If there is one thing dealing with the coronavirus has taught us, it’s the importance of shared endeavour in the face of a disruptive shock. The same is true for the existential threat of climate change, whose physical impacts are already overturning lives and livelihoods across the world, spurring countries, companies and communities to step up commitments to reducing their emissions. The UK has long shown global leadership in this space, having already cut emissions by more than 40% since 1990 – the fastest rate in the G7 – and, in doing so, has become the largest producer of offshore wind energy in the world. 

Ahead of the main event in Glasgow, Italy will be hosting a number of key preparatory events, including the Pre-COP Summit, which will be held in Milan from 30 September to 2 October 2021. The UK and Italy already have a proven track-record of working together to champion the need for urgent climate action, with both being members of the Powering Past Coal Alliance and thus committed to phase out coal power by 2025. As members of the High Ambition Coalition each country has also pledged to Net Zero emissions by 2050.

Why does all this matter?

Recognising this target is both an imperative of climate physics and a public commitment in 125 countries – financial markets, regulators and consumers are increasingly demanding information about how companies are managing climate risks and pursuing opportunities. 

Ahead of COP26, private finance working parties have been established across four key conference objectives covering: reporting, risk management, returns and mobilisation. To provide a more granular insight to the issues being addressed, goals under these headings include the introduction of standardised metrics to align investment portfolios to the transition to Net Zero and encouraging new market structures and products, especially in the context of high quality, tradeable carbon markets.

On the subject of carbon, last week, we were fortunate to join a one day conference on the topic of Carbonomics. Hosted by Goldman Sachs – it included an impressive line-up of global business leaders including those from Unilever, Daimler and Airbus – discussing how they are transforming their business to target Net Zero. Mark Carney – the UN Special Envoy for Climate Action and Finance and the UK’s Finance Adviser for COP26 – was the keynote speaker. He highlighted that every single provider in the financial services sector will be impacted by the targets and recommendations cascaded, post COP26. 

We have long been advocates of a universal taxonomy for reporting and measuring impact and will be following the proposals around standardised metrics closely. The methods for measuring portfolio alignment to Net Zero are new and still evolving. At its core, any assessment of the position of a company or portfolio on the transition path is, fundamentally, an assessment of their performance relative to a benchmark – a fraction of the carbon budget allotted to them. Will we see standards linked to the percentage of a portfolio with Net Zero targets, or could a ‘degree warming’ metric emerge? The latter will report a potential global temperature rise associated with the greenhouse gas emissions from a given company or investment portfolio and could prove a powerful tool.

Implications for portfolios

As we have written before, we firmly believe this transition to Net Zero is creating one of the most attractive commercial opportunities of our age. Our Sustainable Strategy is purposely exposed to this theme and the performance, so far captured, reflects the return on capital this area of sustainable finance has the potential to deliver for many years to come. The theme of energy transition has also been introduced to our Growth Strategy through 2020, with it now sitting alongside our other super secular allocations, like tech and healthcare.

Looking ahead, next year will be important on a number of fronts, not just COP26 and its implications for portfolios. We will have a new US president, Japan will host the Olympic Games and the rollout of Covid vaccines. The latter hopefully meaning we can restart holidaying abroad once again, including enjoying La Dolce Vita in Italy.  

Please do contact us with any questions. 

Julia Warrander and Russell Waite

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