Finance Monthly - December 2021

Finance Monthly. Bus i ne s s & Economy 17 he wheels of global agreement move slowly – since the first Berlin COP1 in 1995, global CO 2 levels have risen nearly 50%, temperatures are up 0.5 degrees, and the ice on the Greenland cap is melting faster than ever. Around the world, governments are increasingly alert to the reality. The amount of CO 2 in the atmosphere has risen historically faster than ever before, and rising CO 2 levels presage higher temperatures. Even the Saudis get the cause and effect and say they will redirect their economy towards carbon neutrality by 2060. The problem is large conferences inevitably result in compromise. Compromises beget consequences. Various themes that have emerged from the conference will all impact society and markets in the coming years. These include: First: the trajectory of carbon pledges and mitigation plans still mean global emissions will continue to rise before tailing off later this century. The experts believe this effectively means political promises to keep temperature rises to a mildly uncomfortable 1.5 degrees look increasingly impossible to keep. The scientists reckon 2.4-2.7 degrees by the end of this century is more likely, and even that depends on everyone sticking to promises. Second: rising temperatures mean higher costs and more chaotic weather events – like the floods, fires, storms and ultra- high temperatures we’ve seen this year. Mountains are becoming less stable as the ice-binding them literally melts. Increasing climate instability will raise political protests. The consequences will fall heaviest on the poorest nations, meaning the requirement of increasing financial transfers to help them, which leads to. Third: the problem of how to support and compensate less developed nations has become an urgent matter. Funding to ameliorate climate change and transition from fossil fuels has already fallen well short of what was promised at the Paris COP. While $100 billion is on offer, that’s the same sum India wants as a precondition to action its promised zero-carbon plan for 2070! And, sadly, there is growing suspicion many countries and corporates will try to free-ride CO 2 emission cuts by others, setting up for rising geopolitical tensions. Fourth: is the critical issue of Energy transition. It sometimes feels like there is an assumption we can just turn every fossil energy source off, and immediately replace them with renewable power – but that’s clearly impossible, unless, of course, you want to switch off the whole global economy. A well-considered energy transition plan is critical but it’s not simple. Thus far the approach has been to encourage renewables through subsidy and market pressure, primarily the E for Environment in ESG investing – which is becoming increasingly fundamentalist in its application – refusing to countenance any fossil fuel investments. But market pressure to end investment in fossil fuels and