COP26 and Climate Change: Impact on the Financial World

Jason, Financial Adviser at CS Financial Group, hosts a special edition of the Mortgages, Money & More podcast looking at COP26, climate change and the financial world.

What’s been happening at COP26?

COP26 is the United Nations Conference about Climate Change and the environment. This year’s event has been quite impactful – there’s been a lot on the news and a lot of reports coming through, sharing some quite alarming statistics about the future of the planet.

But there does seem to have been some good progress made and some important commitments to reduce CO2 emissions and the world’s reliance on fossil fuels.

Why is this important from a financial point of view?

Everyone recognises now that if we don’t take the bull by the horns things will get out of control.

As a financial adviser, I’m starting to now think about how climate change will affect the financial world.

A lot will depend on how forward looking today’s companies and businesses are. A business that’s got a forward looking CEO and is starting to make changes now is likely to have better success in the future – by reaching Net Zero and being more sustainable.

From a mortgage point of view there are changes already – green mortgages are already available, for example. They offer incentives for people who have adapted their house to be more energy efficient or had it insulated in a certain way. I think we’re going to see a lot more of that.

In the past lenders and valuers haven’t been quite sure what they’re looking for. When people started putting solar panels on their homes, it actually made getting a mortgage more complicated because the homeowner didn’t officially own the panels – although that’s improved now.

How will investments need to change?

There are big changes ahead. The news about phasing out fossil fuels fuels is huge for the stock markets – at some point coal will be worthless. And to think about the high value it currently has!

The typical investment portfolios made up of stocks and shares are currently in businesses that are nowhere near net zero.

But we’ll see a massive change there. At this stage, it’s really difficult to understand. What will the future funds be made up of, now that countries have agreed to stop supporting businesses that are involved in fossil fuels.

While the statistics suggest that half of the FTSE100 has set net zero goals. But you wonder what’s going on behind that – is it lip service, or will they actually reach net zero by 2150? And how on Earth do they calculate this net zero? How are they going to assess this? How are they going to actually manage it?

What about changes to the car market?

This is another area of big change. We’re all recognising the need to look at alternatives to the internal combustion engine, which will be phased out in the UK. Production won’t continue beyond 2030.

We take things for granted at the moment – but now we need to think differently. When you’re driving around town, there’s a lot of places that aren’t built for charging an electric car. I think we’ll see some new changes to the market with new ideas to facilitate that, because if you live in a terraced house on a busy street, it’s tricky for you to park up and charge your electric car.

I also think we’re going to see a lot of investment going into businesses that are focused on infrastructure, scientific research and the logistical side of things – to cater for the fact that all cars will be electric in the future.

Things might change even more than that. Will we just switch to electric vehicles or will there be a focus on reducing cars on the road? Could the government make it more difficult for you to drive or charge more in tax? Are we going to make sure that we’re going to recycle the cars of today?

What happened with the US and China at COP26?

It was proving difficult to get China and the US to make the same commitments as other countries, but late news from the conference was that they managed to reach a deal in terms of climate policy and change.

This is brilliant news, especially as China and the US have their own thoughts – while they often agree with the narrative, they have their own ideas and solutions. It shows how serious the threat is that they’ve come on board without splitting off in some other direction.Now that we have these agreements, we need to hold people to account – whether it be the politicians or the businesses that are committing change. And investment can be a big part of that.

Will all investment be ethical?

I’ve been in financial services for a lot of years now, and I remember when ‘ethical investment’ was a new term and a fairly niche way of investing.

It was very much a minority that would opt for that type of investment, and I take my hat off to those early investors who were trying to do the right thing. And now that’s going to become the core investment offering. We will only be able to invest in ethical companies, the ones that are supporting the climate. The others will get left behind.

Many businesses out there have already pledged that they’re going to meet these goals and the government won’t tolerate them not delivering on these expectations. Losing government backing in business is huge, as we’ve seen in the financial crisis and in COVID.

What does it mean for CS Financial?

There’s a lot to do in exploring the best way forward for our investment clients – we won’t be looking at BP and Shell Oil shares any more. The future will be diversified portfolios centred around ethical companies. We’ll see a lot of changes over the next few months and years.

Currency is a very interesting area now. It’s rare that we see people with cash – everybody is using contactless payments. I can definitely see a trend forming here towards digital currency.

We’ve done previous podcasts on Bitcoin, and governments are talking about it now.

We’re here for the ride and to help you make the right investment decisions now and in the future as things develop.