COP28 and Your Wealth

The annual climate summit, known this year as COP28, has just finished. So, what is the interplay between COP28 and wealth? Can this big, glitzy event ever have any relevance for your savings and investments? Well, the answer is yes – both directly and indirectly – and no – because many people really aren’t that interested in risking their money on the sort of sustainable investments delegates at COP28 likely have in mind.

Warming up

You may know that COP28 climate summit took place in Dubai these last few weeks. It’s the (28^th) annual conference of parties (COP) – namely governments – and this year has been awash with decision, indecision, and controversy.

It won’t be lost on you that host United Arab Emirates is one of the world’s largest oil-producing nations. President of COP28, and chief executive of the UAE’s state-owned oil company, Sultan al-Jaber argues he is well placed to push for action from the fossil fuel industry.

The defining agreement at last year’s COP was assistance for developing nations as they adapt to the effects of climate change [1]. This year, as data say we’re likely to hit 2.5% to 2.9% above pre-industrial levels[2], we’ve seen a landmark agreement to transition away from fossil fuels[3].

COP28 and your money

Sobering news. But does any of this actually matter for your own money?

Well, it’s complex, so the answer is both yes and no.

COP and other international agreements on sustainability and climate affect your money through the impositions and targets they place on companies you already invest in.

These are the large, listed companies that are subject to government laws and other rules about emissions. For example, from next year, EU-based companies must do more to report on environmental and similar issues – and more on tackling on the flimsy boasting dubbed greenwashing[4].

Closer to home, we have the 2021 Industrial Decarbonisation Strategy[5], which aims to “accelerate the green transformation in industry.” You can find similar initiatives in many other countries.

It all means the companies in your portfolio will naturally evolve as they manage the risks of a changing climate and seize its opportunities.

Greening your portfolio

It’s possible to go much further – and there are plenty of options for more environmentally friendly savings and investments.

In common with all the investment products we favour, we follow the evidence. This means we favour passive products such as exchange traded funds – which are diversified like a fund but tradeable like a share. There are hundreds of such vehicles around, with a popular funds database listing 665 funds with ESG in their name alone[6].

But while we’re happy to ensure our clients’ investments align with both their targets and their principles, we’re mindful of another piece of evidence.

Or rather, a lack of evidence.

Sustainable investing has its roots in religious and ethical investing practices that date back centuries. Modern sustainable investing emerged in the 1960s and 1970s, driven by growing social and environmental awareness. This means that it remains untested in all market conditions. But a good comparator is the raft of massive technology companies that dominate the American stock market – from Google to Meta. Their ‘promise’ of seemingly endless future growth faded away in the pandemic period.

So, we like to see more evidence of prolonged, positive performance from sustainable and responsible investments, particularly given the recent transition from low to high interest rates.

A dose of scepticism?

Of course, in some cases COP28 doesn’t really have any relevance to your money at all.

Like many of our clients, you may have little interest in sustainable, responsible, climate-friendly or other biases to your investments.

If this is the case, you’re not alone. Retail investing Brits withdrew a record £1 billion from UK responsible investment funds over September and October 2023 alone[7]. Was this scepticism over greenwashing? Second thoughts prevailing over well-intentioned decisions? Perhaps it’s a call on the way these (mainly new) funds had performed over Covid?

It’s hard to say.

But what we do know is that sustainable, responsible and similar green investments are likely here to stay. The investment and business opportunities presented over the next few decades by a warming planet are probably enough to ensure that.

And it’s the sort of thing we at First Wealth believe in. We’re a Certified B. Corp, which means we’re committed to solving social and environmental challenges and making the world a better place.

But when it comes to something as important as our clients’ money, we will follow the evidence, wherever it takes us.

[1] https://sdg.iisd.org/news/cop-27-establishes-funding-arrangements-for-loss-and-damage/

[2] https://www.unep.org/resources/emissions-gap-report-2023

[3] https://www.bbc.co.uk/news/live/world-67674841

[4] https://www.europarl.europa.eu/news/en/press-room/20220620IPR33413/new-social-and-environmental-reporting-rules-for-large-companies

[5] https://assets.publishing.service.gov.uk/media/6051cd04e90e07527f645f1e/Industrial_Decarbonisation_Strategy_March_2021.pdf

[6] https://www.trustnet.com/fund/price-performance/u/all-universes?norisk=true&PageSize=25

[7] https://www.theia.org/news/press-releases/third-quarter-2023-closes-ps12-billion-net-inflows-despite-challenging and https://www.theia.org/news/press-releases/outflows-slow-ps137-million-investors-take-wait-and-see-approach

This document is marketing material for a retail audience and does not constitute advice or recommendations. Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested.