Own the tent not the circus

COP26 has produced a lot of hot air, argues our head of multi-asset investments David Coombs, and that’s half the climate problem facing the world. The other half is empty gestures and a lack of action.

Globe in an atrium

As a manager of a suite of sustainable funds you would expect me to be excited about the fanfare in Glasgow and promoting my green credentials across all social media sites with a fluffy penguin background behind my corporate photo.

Long-time readers will know I take a dim view of such empty gestures at the best of times. And COP26 hasn’t exactly been a lightening strike of courageous action from politicians, so from an investment point of view there’s not really much to get me excited. After all it’s my job to make investment returns not virtue signal. At best, any agreements made by global leaders will simply add a tail wind to existing trends; at worst, it could create yet more hype across ESG-type (environmental, social and corporate governance) companies, pushing valuations to, ironically, unsustainable levels.

When investing, I have long taken a sceptical view of what I’m told by companies, policymakers, other investors, basically everyone. This applies to sustainable investing too. In short, I invest with the facts in mind, not the hyperbole.

Any commitments made in Glasgow by politicians – who, let’s remember, won’t be in power when deadlines roll around – will be hollow unless the technology is in place to provide viable alternatives to high emitters. This goes as much for accelerating the phase-out of combustion engines as it does for eliminating coal power and capturing emissions from carbon-heavy industries.

Just saying, “it will be so,” is easy of course. The reality is much more difficult. When you talk to the companies involved, you get a more circumspect view. If you listen to the conference’s rhetoric, the public must be persuaded to change their habits and accept they will be poorer. Good luck with that if you want to be re-elected regularly.

The conundrum: climate action is regressive

Taxing meat, milk and white van men to enter the city centre may make politicians feel good, but there will be a backlash because it will inevitably fall on the poorest. I sense political and corporate leaders are in danger of misreading the room. Take, for example, a rich man who travels to space and tells the Smiths not to holiday to Majorca next year to save the ice caps. The same thing happened with Brexit and that did not go according to plan to say the least.

Taxing everything that has an emission is not the way forward. It will reduce growth by cutting discretionary spending, hit the lower paid hardest and reduce government revenues when they are needed to help industry find the solutions. Instead, governments should focus on subsidising low-carbon power, farmers’ attempts to reduce methane and businesses’ investments in new technologies. We cover some of these exciting solutions in our latest episode of The Sharpe End podcast. As for consumers, greater education and better food labelling could help: a traffic light system on emissions, for instance, not just salt, fat and sugar.

So, no I cannot see events in Glasgow having a material impact on our investment strategy. We will continue to invest in companies trying to find solutions. Not only does that meet with most people’s wishes, it should also provide good returns for those willing to put their capital at risk.

Companies we hold like Tomra (automated recycling systems), Linde (green hydrogen), Hannon Armstrong (renewable infrastructure financing), Trimble (agricultural land management), Advanced Drainage Systems (reducing water wastage) and DSM (methane-reducing animal feed) are leading the way with action rather than words.

So, by all means set targets, but remember they must be achievable and enforced. Anything else is just hot air and we definitely don’t need any more of that, thank you!

We are committed to investing and supporting businesses that help provide the solutions to the environmental challenges facing us. But we do so with the usual disciplines in place: show me the evidence.

What am I doing? Eating less meat, recycling as much as possible and my pension is invested wholly in the sustainable version of our Dynamic Growth fund. But I am going on a long haul holiday in March. Yes, flying harms the environment, but there are millions whose livelihoods depend on tourism. There are no easy answers to our situation, and pretending to be holier than everyone else is not the way forward.

Tune in to The Sharpe End — a multi-asset investing podcast from Rathbones. You can listen here or wherever you get your podcasts. New episodes monthly.


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