November 25, 2022
The 27th Conference of the Parties to the United Nations Framework Convention on Climate Change – commonly referred to as COP27 – has just finished in Egypt. The most recent International Panel on Climate Change (IPCC) projections show that the Earth is on track for more than 2.5°C of warming1. This is far above the 1.5°C scientists indicate is necessary to prevent dangerous tipping points and far above the 2°C commitment of the Paris Agreement.
Many would consider this a reason to lose hope. In the words of Prime Minister Philip Davis of the Bahamas, since 80% of the country is less than 3 meters above sea level, if 1.5°C degrees of warming is not reached, “we’re either going to be climate refugees or we’ll find ourselves in watery graves.”
The stakes are high and global coordination can often seem painfully slow – especially when they rely on consensus models to establish treaties, like COP27.
Think how hard it is to make a consensus within a family. Can you imagine trying to manage more than 180 different countries from around the world?
While we all share the same atmosphere, it is possible for smaller groups of the willing to make progress. This is exactly what occurs at COP. the conference started with a small body of government representatives from each country, and now attendance has grown to over 45,000 people from many different organizations, including corporations and civil society. The conference also acts as a networking and idea-sharing opportunity across a variety of fields. This is the “coalition of the willing”.
In any movement, there are holdouts. These are representatives of incumbents or people who stand to the side and refuse to make change (Russian President Vladimir Putin comes to mind). It is the coalition of the willing who act as the change makers.
Ironically, Putin’s war has sped up the competitiveness of renewable technologies by showcasing the importance of energy security. In the short term, the removal of Russia’s fossil fuel supply means that we will see an increase in the use of new coal and liquified natural gas (LNG). In the long term, governments now have even more incentive to invest. Renewable electricity is now the cheapest source of electricity in 90% of the world2 , with an ecological footprint far lower than that of fossil fuels. Much of this investment will pour into renewables.
This coalition of the willing is bringing the technological change needed to a swath of industries, including electric vehicles, heat pumps, hydrogen and energy storage technologies. The energy revolution is upon us!
Climate Trace, a credible third-party data source of global emissions, was announced this year at COP27. It is a revolutionary tool that will help investors better understand the emissions profile of each industry down to the project site.
A large focus of COP27 is on emerging economies. Those who have contributed less than 2% towards the current carbon in the atmosphere but bear much of the burden in terms of climate risks. For the first time “loss and damage” was debated during the conference. This term encompasses the “loss” of lives and cultures and the “damage” done by climate disasters.
This year alone there’s been over 29 disasters with damages exceeding $1 billion. Pakistan’s flooding this summer was estimated to surpass $30 billion USD3. How will the “loss and damage”, especially for developing countries, be covered? COP27 engaged in these discussions formally for the first time. Denmark was the first country to offer funding for loss and damage – 100 million kroner – followed by Scotland’s symbolic 1 million pounds.
The coalition of the willing is calling for unprecedented levels of investment. The UN currently estimates more than $32 trillion USD is needed over the next decade4 to reach the goals and targets outlined in the Paris Agreement.
Green bonds will fund much of this investment. Green bonds are fixed income instruments that finance or re-finance renewable energy, energy efficiency, clean transportation, green buildings and other green projects.
Given that prevailing yields have increased significantly (for example, the U.S. Treasury 10-year yield is hovering around 4%, and investment grade corporate bonds yield between 5%-6%), traditional fixed income securities may now be seen as attractive investments. This is especially true relative to low the yield environment we have experienced for much of the past decade.
Green bonds offer comparable returns and risk characteristics to other fixed income instruments with the added benefit of funding projects that make progress toward environmental sustainability.
For these reasons, we are proud to have recently launched the CI Global Green Bond Fund, and to participate in investments that meaningfully address climate change. For example, CI Global Green Bond Fund is taking positions in Apple’s green bond issue which will invest in Elysis (a firm developing carbon-free aluminum smelting technologies), renewable energy projects and carbon sequestration.
Apple estimates that its green bond funded projects have mitigated close to 2 million tons of CO₂ equivalent tonnes per year. The fund also has positions in Ontario’s green bonds, whose proceeds are used to fund clean transit projects including the Eglinton Crosstown and the Ontario Line Subway. The program estimates that it will reduce greenhouse gas (GHG) emissions by 530,000 tonnes (CO₂ equivalent) per year by 2030.
We aim to contribute value in two ways. First by leveraging our in-house global rates and credit team. Second by focusing on issuers who fund end projects that address the sustainability crisis. As such, we prefer issues with a demonstrated, meaningful and measured estimate of annual GHG emission reductions.
Investing is a fundamentally optimistic decision. You invest because you believe in the future, and you invest to secure that future. Investors are increasingly broadening the scope of what they understand to be a “secure future” to include climate considerations. We believe green bonds represent this ideal, allowing investors to directly participate in the funding of projects that will help reach our climate goals and secure Earth’s future.
Are you ready to join the coalition of the willing?
1 IEA World Energy Outlook 2022, October 2022
2 RMI, based on data from BloombergNEF, Solargis, National Renewable Energy Laboratory (NREL), the World Bank, Carbon Brief, Nature Energy and the International Energy Agency (IEA). Presentation found here.
3 United Nations High Level Expert Group
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