The United Nations Climate Change Conference of Parties
For two weeks in October and November 2021, beginning October 31st, world leaders gathered in Glasgow, Scotland, for the 26th United Nations Climate Change Conference of the Parties (COP26). One of the primary goals of COP26 was to begin driving more ambitious emissions reductions to ensure that countries attain net-zero carbon emissions by 2050. The conference also saw the adoption of The Glasgow Climate Pact, signed by nearly 200 countries, including the United States of America, and numerous pledges made by the parties in further efforts to reach emissions goals.
Achieving net zero requires measuring one’s carbon footprint, enabling emissions reduction programs, and offsetting residual emissions. While there are standards to help firms achieve net zero, private markets can be much more difficult to handle. General Partners (GPs) face the challenging task of measuring emissions for internal operations and their entire portfolio. The Limited Partners (LPs) have to contend with disparate data, as the portion of their listed portfolios is further along in its carbon footprinting journey compared with the unlisted quantity. Rightfully so, LPs would ideally like to measure the footprint of their whole portfolio, private and public, on the same basis.
Global warming, the biggest adversary of climate change, is the result of the greenhouse effect. When sunlight passes through the Earth’s atmosphere, it refracts. The refraction alters the frequency of the light beam, and it cannot leave the atmosphere. This is not entirely bad; without the greenhouse effect, the earth would be too cold for humans to survive. However, as the atmospheric concentration of certain gasses has risen, so has the amount of trapped solar energy. The primary greenhouse gasses (GHGs) are water vapor, carbon dioxide, nitrous oxide, methane, and fluorinated gasses. Each of these gasses can survive in the atmosphere for several years to over thousands of years.
Because it takes a long time for some GHGs to leave the atmosphere, their effect accumulates. We are still handling the impact of past emissions, with new emissions compounding the warming effect. Carbon dioxide (CO2) is the most notorious GHG, so we tend to translate all GHGs to their CO2 equivalents (CO2e). When people refer to their carbon footprints, they are referring to their CO2e footprint. Though many people still doubt the effects of climate change, the scientific community has found that a greater concentration of GHGs results in more energy in the weather system. More energy implies greater volatility and, thus, a higher probability of extreme weather.
Asset Owners Need to Measure Their Carbon Footprints
To learn more about achieving net-zero and the results of COP26, go to StepStoneGroup.com:
“Achieving carbon neutrality is gaining momentum, as evinced by the number of governments, corporations, and asset managers that have made net zero pledges. It is easy to get wrapped up in the euphoria. Optimists say these groups believe in the benefits of making the planet greener, cleaner and safer; cynics believe these groups are interested only in positive PR. Whatever their motivations, those making the pledge will soon discover they’ve embarked on a journey that is deceptively challenging. For investors, it is crucial they learn the terrain; a number of new standards and best practices are in the works, and there is an opportunity to contribute to this journey’s direction.
More energy implies greater volatility and a higher probability of extreme weather, which ought to be of grave concern to the world’s asset owners. Our world has become riskier, and climate change is perhaps the biggest risk we face. As such, the weight we place on it when pricing assets is only increasing. An asset cannot be valued correctly if its owners have not estimated its exposure to the physical risks that climate change heralds or its emissions profile. And, if they haven’t done either of those things, they cannot commit to going net zero. To achieve these goals, asset owners need to measure their carbon footprints.”
From Going Net Zero: More Than Meets the Eye - StepStoneGroup
Photo Source: MARKUS SPISKE via Unsplash
What are some pledges from COP26 that you look forward to? Have you noticed changes where you live that indicate efforts towards achieving net zero?
Written by S2A Modular & Associates Inc.
October 31st, 2021