The Zero-Hour Sessions at COP26: Deploying capital in the age of planetary boundaries

Living within our means

“Besides limiting global temperature increases, we must also step back from several other environmental points-of-no-return in areas such as deforestation, biodiversity losses and soil degradation," explained Hubert Keller, Senior Managing Partner at Lombard Odier, in his opening remarks. “If we're to avoid breaching any of these planetary boundaries, we must understand how we can safely use our natural capital and how to adapt our business models to this new reality."

Also speaking at the session was Professor Dr Johan Rockström, Joint Director at the Potsdam Institute for Climate Impact Research, who discussed the planetary boundary that is the primary focus of the COP26 summit: climate change.

“We arrived at COP26 in the knowledge that we're on track to hit at least 2.7 degrees of warming, which would put us squarely in the disaster zone," said Professor Rockström. “And we have yet to see a net-zero pledge that would take us below two degrees of warming. Science-based targets, like the planetary boundaries framework, can guide the trajectories we need."

But with signs that we're already nearing several planetary boundary tipping points, time is running out. Four of the nine planetary boundaries—biodiversity loss, biogeochemical flows, climate change and land-system change—have now been breached. And extreme weather events, such as this summer's 'heat dome' in British Columbia that broke Canadian temperature records, are increasingly common reminders that today's 'exceptional' will be tomorrow's 'normal' should we fail to curb global warming in time.

“We must make the most of the opportunity presented by COP26 to do more," said Professor Rockström, in closing. “This is all about leaving a better world for the next generation."

Read also: Zero-Hour Sessions at COP26: Investing in nature at scale

Funding the transition

Professor Rockström then joined fellow panellists David Blood of Generation Investment Management; Mark Carney, the UK Prime Minister's Finance Advisor for COP26; Jeremy Oppenheim of Systemiq; and Faith Ward, Chair of the Institutional Investors Group on Climate Change; for a conversation moderated by Hubert Keller on how to fund an economy that operates within our planetary boundaries.

Opening the discussion, Mark Carney emphasised the need for frameworks that can help investors deploy capital in ways that are aligned with respecting planetary boundaries. “Lombard Odier was at the forefront of developing the concept of portfolio temperature alignment," said Carney. “Now, we need to mainstream an open-source version of this framework for the industry as a whole. Wednesday saw the announcement of an International Sustainability Standards Board (ISSB) that would be responsible for implementing a Task Force on Climate-Related Financial Disclosures (TCFD)-based sustainability disclosure standard. While this announcement is focused on climate, we also need it to incorporate planetary boundaries."

Read also: The Zero-Hour Sessions at COP26: Lombard Odier and the University of Oxford offer exclusive insights of report: ‘Predictors of success in a greening world’

Meanwhile, David Blood focused on the particular urgency of funding the climate transition. “We must cut carbon emissions in half by 2030, which will require the allocation of one to three trillion dollars of capital per year until then. And while we must, of course, stop burning coal and eliminate deforestation, we must also focus on decarbonising hard-to-abate sectors like cement and steel. And these industries still aren't getting the capital they need to do so. This needs to be our primary focus for the next five to ten years."

Nevertheless, there is an upside to the growing urgency around these challenges, as Faith Ward explained. “We've lost many decades to inaction, and until recently, the financial industry hadn't grasped the severity of these issues," said Ward. “But recent events—including more frequent climate-related extreme weather events, a global pandemic, and figures like David Attenborough bringing problems such as biodiversity loss to the public—have led to far greater global and, crucially, investor awareness of the need to transition to a more sustainable future."

Jeremy Oppenheim singled out another industry that is of particular importance when it comes to living within our means. “The food and agriculture sector must be a key area of focus if we are to adhere to the our planetary boundaries" Oppenheim explained. “From deforestation and biodiversity losses to water and land use, there is no other sector that has such influence over so many of these boundaries. All the evidence suggests that we can make a dramatic improvement in the next ten years with a relatively small investment. What makes the sector such an important area of focus is also the source of its potential to yield a compelling return on investment: since food and agriculture affects so many of our planetary boundaries, our investments will compound."

In the rest of the conversation—which included an audience Q&A—our panellists discussed topics including the need for major industries to act faster on the transition, the importance of tempering urgency with caution to avoid losing capital in a complex system, and the need to turn the momentum of COP26 into investor action.

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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