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Spotlight on Copenhagen

Convener of the P8 Summits- a group of 12 of the world’s largest pension funds tasked with influencing policy makers on climate change – and deputy director of the University of Cambridge Programme for Sustainability Leadership, Aled Jones, examines the Copenhagen Accord and what it means for investors.

Copenhagen, or ‘Hopenhagen’ as it was dubbed, demonstrated that it really is difficult to negotiate an international agreement with almost 200 voices in the room. In the end it came down to the United States and the major emerging economies drafting an Accord which took us no further than we were before. The 12 points of the Copenhagen Accord only reiterate where we thought political leaders had reached before Copenhagen. The frustration that President Obama felt when he arrived at Copenhagen led him to ‘fix it’ and in the process he sidelined the United Nations and all the negotiators that had been drafting text up until that point. China vetoed any mention of emission reduction targets in the Accord – so the 50 per cent global target (and the 80 per cent developed country target) by 2050 was removed.

The threat of climate change cannot be dealt with by taking into account everyone’s vested interests and I can therefore understand President Obama’s frustration but I’m not sure that any agreement was better than no agreement. Maybe it really is time to reform the United Nations process or to take climate change action out of its hands and into a smaller group of countries (as happened in Copenhagen with the United States, China, India, Brazil and South Africa).

So what does all this mean for investors? More of the same? The uncertainty around an international framework certainly remains and the road to a climate solution now looks like a whole host of disconnected national policies. Even with an increasing momentum towards national policy implementation the lack of an international framework will filter down – carbon prices in Europe dropped to a six month low immediately after Copenhagen. It is important that China and the other emerging economies have agreed to text that includes the words measure, report and verify and it will be interesting to watch the negotiations as the detail of what this means is worked out. However, one clear signal from Copenhagen is that climate policy and investment is not going away. The investments made today will be significantly impacted by our emerging response to climate change and there are significant opportunities and risks out there. The future looks a lot more complicated than we had hoped but the need to understand climate solution investing, in all its complexities, has never been stronger.

In the Accord, point 8 outlines the funding required to tackle climate change. The text restates the goal that developed countries will mobilise $100 billion a year by 2020 to address the needs of developing countries. This includes investing in reducing deforestation (REDD-plus), adaptation, technology development and transfer and capacity-building. As the Accord states- ‘this funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance’. There is still an expectation that the private sector will play a significant role in climate solution funding and with further delays and uncertainty in developing a legally binding framework now is the time to engage with the policy makers to ensure that what is finally agreed is workable and achievable. Too many delays have already occurred.

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The pension funds in the P8 group includes CalPERS, CalSTRS, New York State, APG, USS and sovereign wealth funds in Norway, Korea and other parts of Asia.

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