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COP21 Paris
By Ahnika LeRoy, Contributor

In climate change, humankind faces a challenge of unprecedented magnitude.

While skepticism remains, the science of anthropogenic climate change is broadly accepted. Calls to keep the average rise in global temperatures within a 2C threshold date back to 1975. Two degrees centigrade may not sound like much, but to put it in context, the temperature difference between today's world and the last ice age is just 5C. And, while the ramifications of climate change pose enormous risks to the environment, the world economies, and our daily lives, collective action at the global governmental level has been sorely lacking.

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But, there is reason for cautious optimism as there finally appears to be something of a galvanization of efforts to take substantive action during COP21 in Paris.

Since 1992, an ongoing response to the threat of  climate change has been The United Nations Climate Change Conference's (UNFCCC) Conference of Parties, or COP. However, despite running for more than 20 years, COP conferences have yielded little more than discussion.

For the UNFCCC to be fully effective it needs to be implemented via a protocol. This was first attempted at COP 3 in Kyoto in 1997; however, President Bush formally removed the U.S. from the Kyoto Protocol and other countries failed to meet their commitments. No universally accepted and enforceable agreement has resulted out of the subsequent conferences.

Most recently, The UNFCCC held COP20 in Lima, Peru where a New Universal Climate Agreement was drafted. Christiana Figueres, Executive Secretary of the UNFCCC, said, "The negotiations here reached a new level of realism and understanding about what needs to be done… if climate change is to be truly and decisively addressed."

The Lima agreement set the foundations for what is envisioned to be a contract that would bind all countries to reduce their carbon emissions. This agreement is intended to be finalized during this year's COP21 being held in Paris in December of 2015. COP21 will be one of the largest international conferences ever held in France, hosting more than 190 countries and expected to attract close to 50,000 participants, including 25,000 official delegates from governments, intergovernmental organizations, UN agencies, and NGOs around the world.

For COP 21 to be a success, many believe that it must produce a legally binding agreement. However, Carbon Tracker Initiative CEO, Anthony Hobley, suggests that success could actually be a " political agreement on steroids,"given that a legally-binding agreement may lack ambition as countries are unlikely to sign-up to anything they cannot achieve. In addition, "events and technological developments could change the climate change dynamic quickly," thus, a legally-binding agreement may, ironically, be too rigid.

Whatever the case, COP21 must result in detailed agreements that address criticial issues such as setting numerical goals for countries to adhere to, implementing  methods to help developing countries mitigate and finance climate change projects, and the over-arching logistical planning to support objectives. Even though there are high expectations for COP21, no solid numerical goals have been set, and significant philosophical questions remain unresolved.

That being said, as of this month, 146 countries that account for almost 87% of global greenhouse gas emissions have submitted country-level action plans to the UNFCCC. While it is not yet clear how these Intended Nationally Determined Contributions (INDCs) will contribute to keeping within the 2 degrees, the submissions demonstrate an unprecedented level of planning as compared to previous conferences.

These submissions also demonstrate increased cooperation between developed and developing countries-another critical aspect of reaching a sufficiently ambitious agreement. Per Christina Figueres, a number of developing countries have received support from more developed nations in submitting their action plans.

The inherent tension between developed and developing nations is by far the biggest struggle in coming to a climate agreement. It has been argued that it is unfair to hold developing countries to the same standards as developed countries without help. Moreover, for developing countries, climate change and economic development cannot be separated.

A critical issue to be addressed at COP21 is the financial contribution to help developing countries transition to low-carbon economies without threatening their economic development. One solution is the Green Climate Fund(GCF) which aims to collect $100 billion by 2020 to distribute. However, the path to the $100 billion is unclear, as are distribution mechanisms.

But as world governments continue to thrash out their issues, companies are increasingly vocalizing their concerns and their desires to see real agreement come out of COP21. Certainly, in recent months we have seen:

First Affirmative recently joined forces with other financial services firms and industry groups to call for a inclusion of a long-term emissions reduction goal in the international climate agreement. As First AffirmativeCEO, George Gay stated, "In order for First Affirmative, and the wider investment industry, to do our job effectively we need reasonable certainty that there will be universal commitment to implement any plan, including a clear understanding of the strength and depth of emission cuts therein."

In fact, a recent PwC report, which surveyed 142 CEOs globally, found " that companies are on board with climate action, but that they don't have much faith in the U.N. process." PwC found that companies are keen for their governments to set clear goals and establish policy and regulation. To return to the words of Carbon Tracker Initiative CEO, Anthony Hobley, success for COP21 is "an agreement that is relevant to both the World's of business and finance. Particularly the financial markets who both fund the status quo and will need to fund the envisaged transition."

At First Affirmative we believe wholeheartedly in the power of business innovation as a catalyst toward a truly sustainable future. However, business stakeholders need certainty-goals to measure against, market mechanisms to provide incentives, and regulation to enforce accountability. We therefore look forward, with cautious optimism, to COP21 and the efforts of the international community to meet its obligations to create this clarity and to continue the growing momentum towards substantive, collective action.

 

First Affirmative understands that the ways we save, spend, and invest can dramatically influence both the fabric and consciousness of society. We believe that in addition to the benefits of ownership, investors bear responsibility for the impact our money has in the world. Are you making conscious decisions about the impact of your consumer purchase and investment decisions?

 NOTE: Mention of specific companies or securities should not be considered an endorsement or a recommendation to buy or sell that security. Past performance is no guarantee of future results.

Posted: October 27, 2015