With the world watching, failure is not an option at the 26th United Nations Climate Change conference, also known as COP26. The summit in Glasgow begins in 16 days. It is becoming increasingly clear what a recipe for success would look like. Cutting emissions is the obvious approach, but it is not enough. We need to spread and improve technologies to capture existing carbon from the atmosphere. To help in this regard, global leaders need to focus their sights on global pricing schemes for carbon. Flush from their success in setting a minimum corporate tax rate, agreed by 136 countries last week, a similar level of ambition is required to rectify the fact that almost 80% of carbon emissions are still not covered by any carbon price.
Progress must not stop there. We also need to take care of the natural carbon tanks that exist today, namely our oceans, land and forests. Combined, these carbon tanks remove and store approximately 40% of greenhouse-gas emissions, as our Chart of the Week shows. We believe that any credible climate policy needs to incorporate nature’s critical role in emission reduction and removal, as outlined in a recent DWS research paper. Seas are being damaged by acidification, plastic and chemical pollution, overfishing, whaling, coastal habitat destruction, sea-bed mining, while forests suffer from deforestation, fires and droughts.
The sources and absorbers of greenhouse-gas emissions
* Greenhouse Gas
Sources: Project Drawdown - Drawdown Framework, IPCC (2014), Global Carbon Project (2019) DWS Investment GmbH as of 10/12/21
Policymakers therefore need to move with speed for example by expanding marine-protected areas and conservation zones, ensuring coastal habitats are legally protected and banning harmful practices such as bottom trawling, sea-bed mining, whale hunting, shark finning and ending perverse fishing subsidies. There also needs to be an end to new offshore fossil-fuel exploration and production and making sure shipping and marine industries pay-up for the damage created by their operations. While such efforts are best led by states, we believe private investors also have an important role to play.
When it comes to oceans, we find that just eight industries are central, namely offshore oil and gas, marine equipment & construction, seafood, container shipping, shipbuilding and repair, cruise tourism, port activities and offshore wind. Except for seafood, marine equipment and construction, the size of the top 10 companies in the other sectors captures a significant proportion of the total industry when measured in revenue terms. These are mostly large, listed companies, which means there is the opportunity for forceful investor engagement enabling fast-track conversations about ocean stewardship. The investor community therefore has a vested interest in pushing natural capital defense to the heart of the COP26 agenda given the negative externalities these pose for the potential returns of many asset classes.