Omens of Doha flop in Madrid

As delegates meet in Madrid, Spain, this week for the latest annual climate conference, it is important as a starting point to note that the subject has long moved from the margins. The climate crisis is making it into reports from major asset managers and central banks with greater regularity. In fact, one of the biggest stories in the Financial Times this week was about a billionaire hedge fund manager threatening to withdraw investment from companies that do not do enough to improve their climate-related reporting.

That’s not to say there is now enough unity of purpose to ensure that the point of no return will be averted. As arguments in the lead-up to the Madrid conference showed, politicians who are guided by short electoral cycles cannot be counted on to direct a process that requires sacrifices today for benefits that may accrue after they are gone.

So it should hardly come as a shock that even before the start, talk was dominated by disagreements between those who are willing to do what is necessary to reduce emissions and those either because they do not recognise the scale of the crisis or are unwilling to bear the cost of dealing with it who are not.

The Paris accord signed in 2016 by about 200 countries agreed to limit global warming to “well below” 2°C while pursuing efforts to limit it to 1.5°C. A big part of the agreement centred on efforts to help countries deal with the effects of climate change such as rising sea levels, floods and droughts.

Studies so far indicate that temperatures are still rising. The disappointing thing is that the meeting in Madrid will not even be dealing with this. As the UK’s Guardian newspaper reported on Monday, the talks will focus mainly on technical issues such as mechanisms for trading carbon, which can then be used to set up rules on how to measure and achieve cuts. The more serious issue of actual targets is for later.

Sceptics, not necessarily climate sceptics, might reflect on the irony of delegates flying from across the world and spending two weeks in Madrid, without even discussing the most substantive issues. It reminds one of the World Trade Organisation’s failed Doha round of negotiations, which collapsed in 2016 after 14 years. Ominously, it was sunk by an inability to reach agreement on the relative levels of sacrifices that would be expected from richer and poorer nations.

The stakes are higher this time. While the world can compensate for the lack of a global trade deal by signing bilateral and regional ones, it won’t be getting a new planet.

And investors are increasingly aware of this, as was shown last week at the annual general meetings of two of SA’s biggest companies, Sasol which has the dubious honour of being the country’s worst emitter after Eskom and FirstRand. Sasol, which has pledged to reduce emissions by at least 10% by 2030, came under fire after it refused to table a resolution seeking more clarity on its climate strategy. The resolution also sought more detailed disclosure on the company’s emissions.

That resolution was supported by some of SA’s major investors, including Old Mutual Investment Group, in line with the global trend of major asset managers such as Vanguard and BlackRock coming under growing pressure to use their money allocating power to demand action to save the planet.

FirstRand did a better job reading the mood and joined Standard Bank in allowing climate-related resolutions to be tabled. While the one for the group to adopt and disclose a policy on fossil fuel lending was passed, another to have it assess and report on its exposure to climate change risk by October 2020 failed.

It was encouraging to see the climate feature in the Reserve Bank’s latest financial stability review, even if one could be left wondering if its conclusion that a climate-induced crisis is unlikely for the financial sector is optimistic, even complacent.

More urgency is required, but the attention the crisis is receiving provides hope that not all is lost.

TALKS WILL FOCUS ON TECHNICAL ISSUES, WHILE THE MORE SERIOUS ISSUE OF TARGETS WILL COME LATER