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The 2021 UN Climate Change Conference (COP26) brought together parties from 197 countries to accelerate action in achieving the goals of the Paris Agreement and the UN Framework Convention on Climate Change. While we saw governments make significant commitments and pledges at COP26, it remains to be seen how or if these commitments translate into government frameworks, policies, and regulations. Perhaps the most important takeaway from COP26 is that when it comes to climate change the direction of travel is clear: achieving net zero emissions by 2050 or sooner. The speed, mode, and path of travel are less obvious.

The finance community has an important role to play in supporting the transition to net zero. Moving forward, a key focus for asset managers will be on measuring and reporting financed emissions, engaging with issuers to advance net zero transition plans and targets, and working with institutional investors to support them in achieving their climate objectives.

RBC Global Asset Management (RBC GAM) supports the global goal of achieving net zero emissions by 2050 or sooner. We also recognize and support the need to achieve a just and orderly transition to net zero that promotes widely shared economic prosperity. View our net zero ambition and the commitments and actions we are taking to deliver on this here.

5 key takeaways from COP26

  1. For the first time, country commitments bring us closer to the goal of limiting global warming to well below 2oC. Commitments made prior to COP26 had the world on a 2.7oC pathway.1 According to the International Energy Agency however, if all the climate pledges announced to date are met in full and on time, this would be enough to hold the rise in global temperatures to 1.8 °C by 2100.2 While meeting climate targets is by no means guaranteed, this marks the first time that commitments have the world on a temperature pathway of below 2o. This also emphasizes the importance of translating country commitments into sector transition plans, government policies, and concrete actions.
  1. Methane took center stage, with more than 100 countries signing on to the Global Methane Pledge.3 Methane is one of the most potent greenhouse gases and the pledge to cut methane emissions by 30% by 2030, if successful, could reduce global warming by an additional 0.2% by 2050.4 Signatories to the pledge include the U.S., European Union, Canada, and Brazil but large methane emitters such as China, India, and Russia were notably absent. Methane is primarily emitted during the production and transportation of coal, natural gas, and oil, as well as from livestock and other agricultural practices, and the decay of organic waste in landfills.5 Since methane traps more than 80 times the heat than carbon dioxide but degrades more rapidly in the atmosphere, actions that reduce methane emissions can have a quicker effect on global temperature rise.
  1. A broader-than-expected coalition signed on to a commitment to halt global deforestation. More than 100 countries committed to end deforestation by 2030, in a list that included Brazil, China, Colombia, Congo, Indonesia, Russia, Canada, and the U.S.6 The commitment is supported by a pledge of US$19.2 billion to help developing countries restore degraded land, which includes US$1.5 billion to protect the Congo Basin.7 Forests are critical to climate objectives as they absorb carbon emissions, help regulate ecosystems, and can reduce the physical impacts of climate change. The role nature plays in climate mitigation and adaptation is gaining attention and was the focus of a number of discussions at COP26. Moving forward, we should expect to see an increased focus on nature-based risks such as deforestation and biodiversity loss, as well as growing interest in nature-based solutions. See Making Connections: Biodiversity and Climate Change.
  1. References to coal and fossil fuel subsidies made their way into a new Glasgow Climate Pact. Announced a day after formal negotiations were intended to end, the Glasgow Climate Pact was agreed to by all 197 participating countries.8 This agreement marks the first time an agreement includes reference to coal and the goal of reducing coal power generation, a carbon-intensive source of electricity. The agreement also included the goal of eliminating inefficient fossil fuel subsidies and requests that countries review and strengthen their climate pledges in 2022, with a view to limiting global warming to 1.5o. Despite broad agreement, the reference to a coal “phase down” instead of a “phase out,” as well as the ongoing need to address the cost of climate adaptation or “loss and damage” for developing countries will continue to be points of discussion moving forward.9
  1. The rulebook for voluntary carbon markets was finally established. Agreement on the rules governing the international trade of emissions reduction units (referred to as carbon credits) was finally agreed to following six years of negotiations. Key items of agreement included: limitations on the use of carbon credits established under the UN Clean Development Mechanism; a fixed tariff on emissions trading to generate funding for climate adaptation in developing countries; and allowing countries to apply emissions reductions from projects to their national climate targets or sell them elsewhere.10 Establishing the rules for voluntary carbon markets was a much needed step that lay the foundation for finalizing other details in the “Paris rulebook” – the guidebook for how the Paris Agreement operates.11

RBC GAM supports the global goal of achieving net zero emissions by 2050 or sooner and we continue to implement our commitments and actions as described in our net zero ambition. This includes integrating financially material climate factors in our investment approach, measuring and monitoring the alignment of issuers to net zero, and actively engaging with issuers for whom climate change is a material financial risk if they don’t have net zero targets and action plans. When it comes to our own operations, we are committed to maintaining net zero emissions in our operations, which we have done every year since 2017. As a formal supporter of the TCFD, we believe that transparent disclosure of climate risks and opportunities is important, and provide detailed climate reporting in our TCFD 2020 Report.

Learn more about responsible investment.

1. Updated climate commitments ahead of COP26 summit fall far short, but net-zero pledges provide hope, UN environment programme, October 26, 2021 (Link)
2. COP26 climate pledges could help limit global warming to 1.8 °C, but implementing them will be the key, International Energy Agency (IEA), Dr. Fatih Birol, November 4, 2021 (Link)
3. More than 100 countries join pact to slash planet-warming methane emissions, Reuters, November 2, 2021 (Link)
4. Global Methane Assessment: Benefits and Costs of Mitigating Methane Emissions, May 2021, UN Environment Programme (Link)
5. Overview of greenhouse gases, U.S. Environmental Protection Agency, (Link)
6. Glasgow leaders’ declaration on forests and land use, November 2, 2021, UN Climate Change Conference UK 2021 (Link)
7. At COP26, Canada joins more than 100 nations in pledge to end deforestation by 2030, November 2, 2021, The Globe and Mail (Link)
8. COP26 keeps 1.5 alive and finalises Paris Agreement, November 13, 2021, UN Climate Change Conference UK 2021 (Link)
9. Glasgow Climate Pact: Leaders welcome COP26 deal despite coal compromise, November 14, 2021, The Guardian (Link)
10. COP26: Nations strike deal on international carbon markets at Glasgow summit, November 14, 2021, S&P Global Platts (Link)
11. Collaboration – The Paris Rulebook, accessed November 16, 2021, UN Climate Change Conference UK 2021 (Link)

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© RBC Global Asset Management Inc., 2021
Publication date: November 18, 2021