COP26: Why energy is more complicated in 2022 – Fidelity International

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Home    Investing ideas    Sustainable & ESG investing
Published 22 September 2022
Fidelity International

Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
LAST October, world leaders met in Glasgow for the highly anticipated 26th United Nation’s Climate Change Conference of the Parties (COP26).
The conference’s key goals included achieving net zero by 2050, protecting communities and natural habitats, investing $100bn in climate finance per year by 2020 and finalising the Paris Agreement1.
To meet these goals, shifting towards renewable energy and phasing out fossil fuels is an important part of the organisation’s international strategy.
However, five months after the conference, Russia invaded Ukraine – a significant event that seriously disrupted the world’s energy markets. As Russia’s main exports included gas, oil, and coal it indirectly placed an unfortunate spanner in COP26’s goals.
With the UK and EU placing restrictions on Russia’s gas, oil and coal exports, European countries that once partially relied on Russia have now had to reassess their energy security.
Although the UK relies on Russian energy considerably less compared to other countries, the UK’s energy market and international markets have continued to be disrupted and consequently, gas and oil prices also increased sharply and are likely to remain high.
In 2021, imports from Russia made up 4% of gas used in the UK, 9% of oil and 27% of coal – worth a combined £4.5 billion2. Four months after the invasion, the UK imported no oil, gas, or coal from Russia according to trade statistics in June 2022.
Now, energy security is a top priority for governments – even if it means leaning on less sustainable forms like nuclear energy and controversial methods like fracking.
Since energy has spiked, fighting record high energy prices is top of Prime Minister Liz Truss’s list. In early September, it was announced that a typical energy bill will be capped at £2,500 until 2024. Before the cap, it had been due to rise to £3,549 from October3.
Alongside the sanctions on Russian energy, the prime minister is reversing the ban on fracking – a technique which recovers gas and oil from shale rock which was halted in 2019 after environmental groups shared concerns over earth tremors3.
According to Liz Truss’s opening speech on the energy policy debate, North Sea oil and gas production is set to be accelerated as well as clean and renewable technology like hydrogen, solar, carbon capture and storage and wind4.
Nuclear energy is on the agenda too. The PM said that the “Energy policy over the past decades has not focused enough on securing supply. There’s no better example than nuclear, where the UK has not built a single new nuclear reactor in 25 years.”
The prime minister has also ordered a review of the UK’s plan to reduce its emissions to zero by 20505 which she said must be delivered in a manner that is “pro-business and pro-growth”.
The Ukraine Russia conflict has placed energy into the spotlight, specifically less sustainable forms.
So, what does this mean for environmental, social and governance (ESG) in the UK?
While COP26 set out clear goals on meeting net zero by mid-century, some critics would argue that Truss’s policies and proposed plans appear to put ESG on the back-burner – though it is understandable.
For the average person dealing with spiralling food costs and high energy bills, ESG is likely the last thing on their mind.
Looking closer to home for energy means that bills could be curbed a little. But a question we all need to ask ourselves is – does it mean that we prioritise the now, tackle high energy costs while momentarily ignoring the goals of COP26 or begin to prioritise renewable energy and phase out fossil fuels?
The answer is complicated – while phasing out fossil fuels seems easy in theory, it will take a combination of factors to achieve net zero including carbon subsidies, ramp up investment in renewable energy and energy efficiency and stricter government regulation, among others.
With climate change-related events already happening, COP26 goals can’t be postponed forever.
To achieve these targets requires sacrifices on all our parts. Governments will need to play their role – to regulate and organise energy in a sustainable way.
We will also need to adapt our lives by looking closely at the companies and products we buy and invest in. One powerful way to make ourselves heard is through investing. Fidelity’s Sustainable Investment Finder features funds, ETFs and investment trusts that focus on the issues that matter to you.
1. UK COP 26, 15.09.2022
2. House of Commons Library, 12.08.2022
3. BBC, 13.09.2022
4. GOV.UK, 8.09.2022
5. BBC, 23.02.2022
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information is not a personal recommendation for any particular investment. An Investment Manager’s focus on securities of companies which maintain strong environmental, social and governance (“ESG”) credentials may result in a return that at times compares unfavourably to similar products without such focus. No representation nor warranty is made with respect to the fairness, accuracy or completeness of such credentials. The status of a security’s ESG credentials can change over time. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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Learn more about sustainable investing and use our Sustainable Investment Finder to discover options that focus on the issues you care about.
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