Bon Bonn? What the UN Climate Conference taught us

We did not expect many announcements at COP23 that would reshape how we look at the world. None surprised us¹.

In our view, the key takeaways lie in the picture painted of global commitment and the platform built for tougher action in the future. Here there was some progress. Outside the formal proceedings, the EU reached an initial agreement to tighten its emissions trading scheme ² and a group of 19 countries launched an alliance to phase out coal-fired power ³.

Global action continues to move forward, albeit slowly

Against a backdrop of the commitments leaders made in Paris to limit temperature rises to two degrees, we continue to see collective ambition mixed with reluctance to take individual action or to be held to account. But despite the hurdles some countries tried to erect, the conference marked a step closer to the binding rules that will translate commitments made in Paris into tangible action.

As investors, we see two main factors in the climate challenge.

• The pace and timing of a transition toward decarbonisation
• The implications of tougher policies and action for industries, companies and investment returns

We developed the Climate Progress Dashboard to track a range of trends that tell us where the world’s collective actions will take us.  It still points to a 4°C temperature rise; indicating a persistent gap between ambition and action. The Bonn conference doesn’t materially change that conclusion, but the building blocks for tougher action are being built.

Walking before you can run

As Brazil’s environment minister put it, "Right now we're moving at a brisk walk, so all countries will need to really pick up the pace from here." In our view, the world is going to have to start sprinting soon. 

Although the Paris agreement was hailed as a watershed in tackling climate change, it amounted more to a set of goals than a clear path of how to achieve them. Filling in the details has been a priority and COP23 was meant to make headway on drawing the roadmap to limiting global temperature rises to two degrees over pre-industrial levels ⁴. Complicating matters, policy makers have a range of other domestic and international issues to grapple with. The US decision to withdraw from the accord sidelined the world’s largest economy.

The 2020 COP is slated to confirm a rulebook translating the Paris goals into tangible actions.  The meeting in Bonn was meant to start drafting that rulebook.  There were two main topics on the agenda and progress was made on both fronts.

1. There was a debate as to whether financial support, from developed countries to emerging economies, should be legally binding. Despite the question being dropped from the official agenda before talks started, some of those pre-2020 actions were included in the final agreement. 
2. A measurement of countries’ greenhouse emissions - so that progress toward individual national commitments can be tracked – was discussed. Although developed countries including the US and EU resisted measurement, there was an agreement to convene a “stocktake” in 2019.

Both points represent progress on how commitments made in Paris will be delivered. As we have argued before, these details are key. A collective agreement without tangible action doesn’t amount to much. 

The task ahead

Limiting temperature rises to two degrees will mean cutting annual greenhouse gas emissions by close to two-thirds through 2050, during which time with the world’s population will rise by about a fifth and its economic output will triple. The efforts we have seen so far just scratch the surface.  Research from the Global Carbon Project, released during the conference, found that global emissions are set to reach a new record this year.

Looking forward, a huge amount of change lies ahead if global leaders are to translate the commitments they made in Paris in 2015 into tangible action. The conference in Bonn brought those changes a small step closer. 

^{1. In the end, the final agreement was not published until Saturday morning. The full text of the final communique is at http://unfccc.int/resource/docs/2017/cop23/eng/l13.pdf ↩}

^{2. The full declaration is available here: www.ym.fi%2Fdownload%2Fnoname%2F%257B2ECC2AA5-F5D9-4551-BEC1-63C29DDB57A4%257D%2F132328&usg=AOvVaw0zafi19TN96ECi7g3--PDu. Its signatories do not include the world’s major coal consuming countries, or countries for which coal remains a significant proportion of their energy mix ↩}

^{3. See http://www.schroders.com/en/lu/professional-investor/featured/climate-change-dashboard/ for more details↩}

^{4. References to temperature rises refer to the long run (2100) increase over pre-industrial levels (which the IPCC and most researchers take to be 1850-1900). Temperatures have already risen by 1.1° since that period.↩}