All investment strategies have the potential for profit and loss, capital is at risk. Past performance is not a guide to future returns.
Background
For nearly 30 years, the United Nations has held an annual climate summit. These events, each known as a COP (Conference of the Parties), bring together the world’s governments and businesses to discuss and negotiate ways of tackling climate change. COP26 was recently held in Glasgow, just 50 miles from our offices in Edinburgh, and was particularly significant because it was the fifth summit since COP21 in Paris. At COP21, the Paris Agreement was reached; this was a commitment to pursue efforts to limit global warming to 1.5C in the long term, compared with pre-industrial levels. It was agreed that progress towards this objective would be reassessed every five years (COP26 was delayed by a year because of the global pandemic).
What happened at COP26?
The most conspicuous outcome of the two weeks of negotiations at COP26 was the Glasgow Climate Pact. The pact agreed that the 1.5C target should remain an important focus, and seeks to increase the pace of progress towards the climate action goals agreed in Paris. All countries agreed to revisit their own emissions targets, known as Nationally Determined Contributions (NDCs), in 2022 - after which progress will be reviewed annually rather than every five years.
While this is a concrete step towards further focus on countries’ climate plans, many observers expressed disappointment that global policies remain very far from being aligned with the goals set in Paris. They feel that these aims can now only be met through prompt action. It’s also arguable that failure to reach an agreement on carbon pricing was one of the big missed opportunities of COP26. From our own perspective, we would like to have seen more detail of the transition plans required for the UK to meet the long-term climate goals.
On the positive side, however, there were announcements on deforestation, methane, and fossil fuels, and the materiality of the agreements that were reached was greater than ever before. There was also a noticeable change in the tone of the language used – moving from climate warming and climate heating towards climate crisis. And in relation to disclosures on climate issues, the International Financial Reporting Standards Foundation announced the establishment of a new International Sustainability Standards Board.
The world’s developed countries were urged to do more to compensate developing ones, and it was significant that oil and gas were mentioned in the agreement reached at the summit. Indeed, agreement was reached for the first time on phasing down the use of unabated coal (coal power without the use of a process to reduce the pollution it produces). Sources of both public and private finance, and the communities that support them, were urged to work towards achieving further progress in adapting to the impact of climate change.
Taking together all the commitments made at COP26, it is estimated that global warming could be limited to around 1.8C by 2050.
What implications might there be for us as stewards of your assets?
From our point of view, it is significant that the narrative has evolved from being mainly concerned with costs to one that considers potential gains and opportunities. This fits naturally with Baillie Gifford’s approach of seeking opportunities and outliers over the long term.The two perspectives on climate change were acknowledged by Janet Yellen, United States secretary of the treasury, when she spoke at COP26: “rising to this challenge will require the wholesale transformation of our carbon-intensive economies…at the same time, addressing climate change is the greatest economic opportunity of our time”.
The demand side will be an increasingly interesting one for us to assess. We already invest in companies involved with the production of non-meat burgers and alternative sources of energy, to take just two examples, and we will continue to look for companies that can innovate, adapt or have helpful influence in the future. Opportunities may present themselves among the so called ‘picks and shovels’ businesses that support new products and technologies, and we will continue to look thoughtfully at the ways in which companies allocate their capital given the issues that COP26 focused on.
We expect the management of the companies in which we invest to be trustworthy stewards of our clients’ capital. In assessing and monitoring this, we firmly believe that their approach to ESG must be holistic and must not be treated simply as an exercise in ticking off a list of requirements.
We would also note that if the macro goals debated and agreed at COP26 are to be reflected in the strategy of individual companies, we believe it will be helpful for countries to step forward with their frameworks for progress. Fossil fuel phase-out plans, for example, represent a way in which regulation can be a useful guide as businesses develop their strategies for the future.
Finally, looking at our own business, we recognise that we share a responsibility towards the environment. In 2019 we set ourselves the goal of halving the CO2 accounted for by each employee by 2025. We offset twice the amount of carbon that we produce through travel, and have several partnerships with charities and academics focused on environmental issues. We have also become a signatory to the Net Zero Asset Managers (NZAM) initiative, whose commitments include the support of investment aligned with net zero emissions by 2050 or sooner.
We will consider the challenges of climate change in a thoughtful way as we go about our task of long-term investing for our clients. There will be exciting opportunities too, and we shall be alert to those.
Risks and important information
The views expressed in this communication are those of Chris Huckle and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect personal opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.
This communication was produced and approved in December 2021 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.
Stock examples
Any stock examples and images used in this communication are not intended to represent recommendations to buy or sell, neither is it implied that they will prove profitable in the future. It is not known whether they will feature in any future portfolio produced by us. Any individual examples will represent only a small part of the overall portfolio and are inserted purely to help illustrate our investment style.
This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.
All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.
The images used in this communication are for illustrative purposes only.
Important information
Baillie Gifford & Co and Baillie Gifford & Co Limited are authorised and regulated by the Financial Conduct Authority (FCA). Baillie Gifford & Co Limited is an Authorised Corporate Director of OEICs.
Baillie Gifford Overseas Limited provides investment management and advisory services to non-UK Professional/Institutional clients only. Baillie Gifford Overseas Limited is wholly owned by Baillie Gifford & Co. Baillie Gifford & Co and Baillie Gifford Overseas Limited are authorised and regulated by the FCA in the UK.
Persons resident or domiciled outside the UK should consult with their professional advisers as to whether they require any governmental or other consents in order to enable them to invest, and with their tax advisers for advice relevant to their own particular circumstances.
Financial intermediaries
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Europe
Baillie Gifford Investment Management (Europe) Limited provides investment management and advisory services to European (excluding UK) clients. It was incorporated in Ireland in May 2018 and is authorised by the Central Bank of Ireland. Through its MiFID passport, it has established Baillie Gifford Investment Management (Europe) Limited (Frankfurt Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in Germany. Similarly, it has established Baillie Gifford Investment Management (Europe) Limited (Amsterdam Branch) to market its investment management and advisory services and distribute Baillie Gifford Worldwide Funds plc in The Netherlands. Baillie Gifford Investment Management (Europe) Limited also has a representative office in Zurich, Switzerland pursuant to Art. 58 of the Federal Act on Financial Institutions (“FinIA”). It does not constitute a branch and therefore does not have authority to commit Baillie Gifford Investment Management (Europe) Limited. It is the intention to ask for the authorisation by the Swiss Financial Market Supervisory Authority (FINMA) to maintain this representative office of a foreign asset manager of collective assets in Switzerland pursuant to the applicable transitional provisions of FinIA. Baillie Gifford Investment Management (Europe) Limited is a wholly owned subsidiary of Baillie Gifford Overseas Limited, which is wholly owned by Baillie Gifford & Co.
Hong Kong
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South Korea
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Japan
Mitsubishi UFJ Baillie Gifford Asset Management Limited (‘MUBGAM’) is a joint venture company between Mitsubishi UFJ Trust & Banking Corporation and Baillie Gifford Overseas Limited. MUBGAM is authorised and regulated by the Financial Conduct Authority.
Australia
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This material contains general information only. It does not take into account any person’s objectives, financial situation or needs.
South Africa
Baillie Gifford Overseas Limited is registered as a Foreign Financial Services Provider with the Financial Sector Conduct Authority in South Africa.
North America
Baillie Gifford International LLC is wholly owned by Baillie Gifford Overseas Limited; it was formed in Delaware in 2005 and is registered with the SEC. It is the legal entity through which Baillie Gifford Overseas Limited provides client service and marketing functions in North America. Baillie Gifford Overseas Limited is registered with the SEC in the United States of America.
The Manager is not resident in Canada, its head office and principal place of business is in Edinburgh, Scotland. Baillie Gifford Overseas Limited is regulated in Canada as a portfolio manager and exempt market dealer with the Ontario Securities Commission (‘OSC’). Its portfolio manager licence is currently passported into Alberta, Quebec, Saskatchewan, Manitoba and Newfoundland & Labrador whereas the exempt market dealer licence is passported across all Canadian provinces and territories. Baillie Gifford International LLC is regulated by the OSC as an exempt market and its licence is passported across all Canadian provinces and territories. Baillie Gifford Investment Management (Europe) Limited (‘BGE’) relies on the International Investment Fund Manager Exemption in the provinces of Ontario and Quebec.
Oman
Baillie Gifford Overseas Limited (“BGO”) neither has a registered business presence nor a representative office in Oman and does not undertake banking business or provide financial services in Oman. Consequently, BGO is not regulated by either the Central Bank of Oman or Oman’s Capital Market Authority. No authorization, licence or approval has been received from the Capital Market Authority of Oman or any other regulatory authority in Oman, to provide such advice or service within Oman. BGO does not solicit business in Oman and does not market, offer, sell or distribute any financial or investment products or services in Oman and no subscription to any securities, products or financial services may or will be consummated within Oman. The recipient of this material represents that it is a financial institution or a sophisticated investor (as described in Article 139 of the Executive Regulations of the Capital Market Law) and that its officers/employees have such experience in business and financial matters that they are capable of evaluating the merits and risks of investments.
Qatar
The materials contained herein are not intended to constitute an offer or provision of investment management, investment and advisory services or other financial services under the laws of Qatar. The services have not been and will not be authorised by the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or the Qatar Central Bank in accordance with their regulations or any other regulations in Qatar.
Israel
Baillie Gifford Overseas is not licensed under Israel’s Regulation of Investment Advising, Investment Marketing and Portfolio Management Law, 5755-1995 (the Advice Law) and does not carry insurance pursuant to the Advice Law. This material is only intended for those categories of Israeli residents who are qualified clients listed on the First Addendum to the Advice Law.
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