Climate change is both an amplifier of existing events and a disruptor of economies and industries. The year 2020 was marked by devastating wildfires, floods and hurricanes, but also by increasing government action to reduce the impact of climate change. It was also marked by accelerated technological innovation, with low-carbon solutions becoming increasingly competitive. Looking back at the climate headlines of 2020 and forward to those of 2021, here are some of the climate-related stories we expect to see:
COVID-19 recovery and rebuilding
As recovery from the COVID-19 pandemic begins, we will see the opportunity to rebuild with climate in mind. Governments have committed over 12 trillion of dollars in fiscal stimulus globally in response to the pandemic, equivalent to over 15% of the global economy.1 While the immediate needs are for health care, food security, and employment assistance, the recovery also presents a unique opportunity to build (or re-build) with the long term in mind. This should focus on retraining workers for areas of growth and opportunity in the transition to a low-carbon economy, supporting investment in low-carbon capital expenditure and technologies, and in climate-resilient infrastructure.
United States takes action on climate change
The U.S. will re-enter the international stage on climate change. Rejoining the Paris Agreement, setting net-zero emissions targets, and offering to reskill workers are just some of the commitments made by the Biden administration to date. The speed and scale at which these commitments can be delivered is less certain in the current political context. However, new appointments and mandates related to climate change at the cabinet level, the U.S. Federal Reserve, and the Treasury Department signal a deeper shift in perspective.
United Nations Climate Change Conference
The year 2020 marked five years since the signing of the Paris Agreement and the deadline for signatories to submit updated climate pledges. After skipping 2020 as a result of the pandemic, the annual United Nations Climate Change Conference (COP 26) will take place in November 2021. Expect governments and corporations to announce big commitments, actions and investments directed towards climate change mitigation and adaptation.
Deeper focus on transition – across all sectors
The importance of energy in the transition to a low-carbon economy will continue, but the focus will also shift towards the need and opportunity for all sectors to transition. Innovation, disruption and cost competitiveness for low-carbon technologies will continue across transportation, manufacturing, construction, as well as other sectors.
Net-zero emissions race
The race to net-zero emissions is on. The year 2020 marked a tipping point for government action on climate change, with over half of the global economy now covered by net-zero commitments.2 Starting with the United States announcing its re-entry into the Paris Agreement, the year 2021 will see a sharp rise in the number of countries making net-zero emissions commitments, as well as an increase in these commitments being passed into law.
The rise of nature-based solutions
Nature-based solutions is a term used to describe actions that protect or restore natural ecosystems and address issues such as biodiversity loss, soil erosion, water scarcity, and forest degradation. These solutions include sustainable forestry, sustainable agriculture, flood protection, carbon sequestration, and green infrastructure. The role of nature-based solutions in addressing climate mitigation and adaptation will continue to rise, as will a focus on the need to finance these.
Standardization and regulation of climate measurement and disclosure
We will continue to see the rapid advancement of standardization and legislation on how climate change is measured, managed, and disclosed. The UK and the European Union are leading the regulatory momentum in this regard, with Canada, Australia and the U.S. also venturing in. On the disclosure front, last year saw five of the main sustainability framework and standard-setting bodies, including the Sustainability Accounting Standards Board (SASB), CDP and Global Reporting Initiative (GRI), release a shared vision for collaboration. At the same time, a consultation paper by the International Accounting Standards Board evaluated the need for a global standard-setting body. The year 2021 will see the outcome of that consultation, and increasing attention to global sustainability standards.
In 2021 and beyond, we believe investors who include climate change in their investment decision-making will be well-positioned for the future. At RBC Global Asset Management (RBC GAM) we integrate climate change into our investment process, consider climate mitigation and adaptation in our active stewardship activities, align climate-based solutions with client demand, and provide transparent and meaningful reporting and insights on climate-related issues.
Find out more about RBC GAM’s approach to climate change.