At the time of writing, it’s been less than a week since COP26, the United Nations’ climate change conference, finally wound up, after two weeks in Glasgow and an extended period of ‘overtime’, as the world’s governments haggled over the exact nature of their commitments. But my Inbox is already crammed with summaries and analysis of its progress and potential consequences. Yet it is still far from clear if the last-minute agreement from the UN parties, what we now know as the Glasgow Climate Pact, was sufficient to place the world on a path that might help curb global warming.
Not surprisingly, perceptions vary widely as to whether, after Glasgow, the glass is half full or half empty. There are, of course, a few that argue the glass has been dropped and shattered – that the economic and geopolitical system is far beyond recovery or repair, and simply not fit for the purpose of protecting the planet. But I think there are still reasons for optimism and hope. I personally tend to concur with the astute commentator who wrote, ‘COP26 delivered more than expected but less than is needed’.1
There is frequently an element of almost inevitable disappointment when we consider the delays and compromises embedded in these collective COP statements, particularly when contrasted against the stark and frightening realities of the climate science. But significant progress was made in Glasgow; commitments were strengthened, and actions were more clearly defined. The intergovernmental pledges to tackle deforestation and methane emissions, in particular, may rapidly be translated into meaningful regulatory or legislative changes. Bloomberg NEF analysis gave the completed conference a score of 6 out of 10 - a relative sign of success, given that before the conference they had estimated its probable outcomes as only worth 4.7/10.
Perhaps the clearest statements of intent emerging from Glasgow came from the investment and finance community. Former Bank of England governor, Mark Carney, captured the sense of urgency well in his piece for the Financial Times, published a few days before COP26 kicked off: “We must build a financial system entirely focused on net zero… Your money matters. In the months and years ahead, judge all financial institutions not by what they say but by their numbers.”2 These comments also reflect another common theme of the discussions in Glasgow’s conference centres; the need for clear measures of progress, and the demonstrable integrity and accountability of those reporting on their progress.
At COP26, Mr Carney highlighted the rapid growth in support for the Glasgow Financial Alliance for Net Zero (GFANZ), stating the AUM of its membership had recently reached US$130 trillion.
And this was where we at the World Gold Council focused our attention and participation at COP26. We attended and spoke at two of the major ‘side events’ - the World Climate Summit and the Sustainable Innovation Forum - at which business and finance leaders were formulating their plans and clarifying their strategies to contribute to emissions reduction and climate mitigation. And at these events, the major institutional investment groups – GFANZ, IIGCC, UNPRI, etc. – spoke with what came remarkably close to one voice; signalling, perhaps, their expectation that we are on the cusp of what influential academic, economist and climate advisor Nicholas Stern recently described as, “the biggest capital reallocation since the Industrial Revolution”.3
The complexities of this reallocation, and the economics and geopolitical realities of the transition to a decarbonised economy were clear for all to witness in the drafting of the Glasgow Pact; for example, in the weakened positions on fossil fuel subsidies and the phasing out – sorry, ‘phasing down’ – of coal, which had reporters commenting on the visibly emotional disappointment of COP26 President Alok Sharma.
Compared to many other industries, the gold sector is in a relatively positive position with regards investor and societal expectations on sectoral emissions reduction. Its pathway to Net Zero is all about how gold mining changes its power sources - how it consumes and generates electricity. It is, therefore, very much aligned with – and, in many instances, will support and accelerate - the changes needed to wean the global economy off its dependency on fossil fuels.
Significantly, this clear and concentrated opportunity, rooted in gold mining’s actions to actively decarbonise its power sources, will also have positive wider development impacts. There are already notable examples of relatively remote locations in many gold mining jurisdictions, from northern Canada to Burkina Faso and the DRC, where gold mining has been the main catalyst in bringing clean energy to the region and local economies and communities.
There is a strong argument that one of the failures of COP26 was that it didn’t adequately address the concerns of vulnerable nations – including those imperilled by physical climate impacts, such as the small island states, and those lacking the resources to maintain socio-economic growth while, concurrently, building the capacity to implement adaptation and resilience plans.
This - how decarbonisation and adaptation is funded and supported in poorer locations - is a theme that is likely to develop as we look forward to COP27 - an African-hosted conference. It is highly likely that the voices of ‘frontier’ and developing economies will be more forceful in shaping next year’s conference agenda than was the case leading up to Glasgow.
And while these issues may not have been at the front and centre of COP26 negotiations, we found they clearly resonated with many of the conference delegates and speakers we encountered. My suggestion (made during a panel discussion at the World Climate Summit), that decarbonising gold would, in many countries, require companies to pursue actions that would have ‘real economy’ impacts well beyond mine sites, generated a lot of interest from the audience.
Looking downstream, from mine to market, there is also a case to be made for gold as a potential climate-risk mitigation asset. It can be argued that, against a likely backdrop of amplified market risks and volatility, from escalating climate impacts on particular sectors or the market friction and disruption that may be imposed by a less than orderly transition, there will be heightened demand for a stable store of value with minimal direct emissions. For gold investors, therefore, there is some cause for optimism and a reason to believe the glass might still be half full, even in the face of the many looming challenges imposed by the climate crisis.