Responsible investing: the beginning of the end of fossil fuels ?

At the same time as the 28th “Conference of the parties” (COP28) which was held in Dubai last December, it was confirmed[1] that the temperatures recorded on the planet had reached a new (and sad) record in 2023. Not surprisingly, the consumption of coal also reached a new record in 2023.

Coal is considered the energy source for developing countries and some countries such as China and India were reluctant to recognize the need to move away from coal at COP28. This perfectly demonstrates the difficulty in finding climate agreements when 194 countries are represented and all face different challenges. For example, some countries are very vulnerable to rising ocean levels while others are seeing their annual temperatures dangerously approach survival thresholds (such as the Arab Emirates). We also can’t forget that some countries simply do not have the financial means that such an energy transition would require.

Agreement from COP28

We can be encouraged that after 28 years of negotiations, the signatory countries have finally addressed the fossil fuels issue head-on and agreed on a transition trajectory away from fossil fuels and to achieve net-zero emissions by 2050. The message is finally being sent to businesses: the energy of the future will be carbon-free energy.

The inevitable consequence being that it will be necessary to invest massively in “low carbon” energies. To this end, it is also the first time that a declaration from a COP mentions nuclear energy by calling for an acceleration of its development. Canada joined 19 other countries in a declaration at COP28 calling for tripling nuclear capacities by 2050. As such, nuclear power is considered a low-carbon energy source, even if the management of its waste is still actively debated.

According to the COP28 agreement, countries choose for themselves how they will replace fossil fuels, whether using solar, wind, nuclear, hydrogen or carbon capture/storage (this method has yet to be proven).

However, analysts warn us: financing falls short for the desired objectives. This is the great weakness of this agreement. Among other things, there is no commitment to help developing countries decarbonize. Which is, however, one of the major challenges of the transition.

This 28th Conference of the parties therefore marks a real political commitment to decarbonize energy production, but the means put forward to achieve this are judged by several observers to be very insufficient.

The role of pension plans and responsible investing

Given their long-term nature and the significant capital they have invested in different markets, pension plans play a central role in this energy transition. They have the power to allocate their capital to companies that take responsibility in facing climate change.

SAI Actuarial Services’ responsible investing tools and consulting services help pension plans identify risks and opportunities as they enter this transition. Do not hesitate to contact us to discuss it further.