In 2005, Rathbone Greenbank held the first of two annual Investor Days on the subject of climate change. In 2009, the world watched as the fifteenth Council of the Parties (COP15) of the UN Framework Convention on Climate Change (UNFCCC) convened in Copenhagen to try to agree a treaty that would replace the Kyoto Protocol, signalling a new era of carbon emissions control. The parties wrestled with the deeply complicated issues, and failed to agree a deal.

At COP16 in Cancun in 2010, the ramifications of 2009’s failure were still being felt, and a system of voluntary targets was agreed to bridge the gap left by the end of Kyoto. Hopes for a global deal on climate change in 2011 – one which recognises the historic role of developed countries while curbing the emissions of developing countries – were slim. The biggest current emitters – the United States and China – were at loggerheads and expectations were at an historically low ebb.

In 2011, the parties met in Durban and again failed to deliver. The headline story is that the world’s leaders did not agree a binding treaty on reducing carbon emissions in a fair and dynamic way which will alleviate the worst of the warming predicted by the scientific work of the Intergovernmental Panel on Climate Change (IPCC).

They did, however, decide that a binding agreement must be in place by 2020, and charged the newly formed ‘Ad Hoc Working Group on the Durban Platform for Enhanced Action’ with effecting this commitment. Voluntary commitments agreed in Cancun will still be in effect in this period.

However, there is a deep sense of unease within the environmental lobby regarding the lack of agreement on a successor to Kyoto and the eight-year gap during which the world will have no binding emissions reduction framework. If we were in 1992 and not 2011, this would be less of a worry. But all the scientific advice suggests certain ‘tipping points’ in the climate regulation system may now be unavoidable if emissions continue to rise until 2020.

Worryingly, concern for the environment has plummeted in public attitudes just as the need for action grows stronger. The British Social Attitudes 2011 survey showed a steady decline in environmental awareness in the UK population between 2000 and 2010. The 2010 survey found that the proportion of people who think climate change is dangerous had fallen significantly[1].

What has caused such a change in attitudes? The most obvious answer is concern about the economic and the austerity measures imposed by the Coalition Government in dealing with the aftermath of the financial crisis. We tend to over-emphasise threats close to us and under-estimate future threats. Such short-term worries may explain some of the weakening in environmental awareness. It is also important to remember the impact of the ‘Climategate’ scandal and the continued erosion of trust in climate science caused by the climate change sceptics’ lobby. In addition, the messages presented on the subject to the average person in the street through the mainstream media are highly confusing to say the least.

However, there were some positives for environmentally-aware investors interested in the provision of capital to ease the journey along the low-carbon transition pathway which will be needed. The group of developed nations in the UNFCCC agreed to provide $100bn a year by 2020 to support climate adaptation and mitigation through the Green Climate Fund. Interestingly, a significant role is expected to be played by private investors in financing this activity.

With the US political scene polarised by the emergence of an ultra-conservative fringe, it is unlikely to ratify any new treaty on climate change or be an active figure in promoting such an agreement. Just days after the Durban agreement, Canada also announced that it was pulling out of Kyoto, claiming that it needed to avoid financial penalties it is due to pay because of its reliance on extractives industries for achieving growth in recent years.

However, the Durban conference did offer a glimmer of hope in that the rhetoric employed by China changed considerably. The world’s largest current emitter was at least prepared to commit to some form of legally binding treaty which covered all countries.

The fundamental flaw of Kyoto was its lack of ability to adapt to changing economic realities. Any new deal which will avoid the worst warming will have to account for China, India and Brazil among others, and these countries were classified as “developing” under Kyoto. Certainly, their emissions per capita are lower than some, but China and India come first and third in terms of total absolute emissions, and their profiles are growing as rapidly as their economies. As the Eurozone falters and traditional large emitters struggle to grow their way out of a crippling recession, the only hope for action now lies with the big new emitters. There is an element of unfairness which certainly rings true about this, but the world is a very different place in 2012.

Kyoto, and with it the best efforts of the old economic order, have seemingly failed. Whether the new economic leaders will rise to the challenge remains to be seen. In the mean time, there is significant opportunity for clean investors to ‘plug the gap’, encourage more energy efficient technology, invest in low-carbon infrastructure and hold companies to account for their environmental footprints.

Matt Crossman