% return in C$
Canada: MSCI Canada; U.S.: MSCI USA; International markets: MSCI EAFE; Emerging markets: MSCI Emerging Markets. Source: Morningstar Direct
Fixed income and currency
% return in C$
Canada investment grade: Bloomberg Barclays Canada Aggregate; Global investment grade: Bloomberg Barclays Global Aggregate; U.S. high yield: Bloomberg Barclays U.S. High Yield. Source: Morningstar Direct.
COP26 and investing in energy transition
The 26th UN Climate Change Conference of the Parties (COP26) summit took place in Glasgow, Scotland from October 31 to November 12. COP26 brought together nearly 200 nations, aiming to foster consensus on how to address climate change. The summit was also an opportunity to evaluate progress on previously agreed upon goals (including at COP21 in Paris in 2015), while also establishing new goals. From a Canadian perspective, we had seen devastation in British Columbia from wildfires earlier in 2021, and later in November record flooding caused severe damage throughout the province. These disasters have illustrated in vivid detail the real-life damaging consequences of climate change.
COP26 culminated with the signing of the Glasgow Climate Pact, which included a pledge by more than 100 countries to cut methane emissions down 30% by 2030. Methane is currently responsible for approximately a third of human-generated global warming. There was an agreement to “phase down” the use of coal, which is responsible for close to 40% of annual CO2 emissions. Over 120 countries representing approximately 90% of the world’s forests pledged to halt and reverse deforestation by 2030. The pact also called on developed countries to significantly increase support, beyond the currently committed US$100 billion annually, to help developing countries transition toward clean energy technologies.
A key theme of the summit was the greater alignment of the public sector with private enterprise. Nearly 500 global financial services firms agreed to align US$130 trillion, approximately 40% of the world’s financial assets, to back clean technologies and divert funding away from fossil fuel-burning industries. This will further accelerate prevailing trends in energy transition, including in sustainable energy and clean infrastructure. It provides an immense opportunity for asset managers to achieve strong financial returns by investing in companies developing solutions in this space, or more broadly by benefitting from companies moving towards a net-zero business model.
Percentage of publicly traded companies declaring net-zero targets almost doubled in a year (2019–2020)
Source: Bloomberg, MSCI All-Country World Index, as of January 5, 2021. Data based on MSCI All-Country World Index constituents. Decarbonization targets aim to reduce emissions but do not necessarily target net zero. For example, a company may set a target to reduce emissions by 50% by 2050.