THE vital signs of limiting global warming to 1.5 deg Celsius are “starting to ebb” with the approach of the 2023 United Nations Climate Change Conference (COP28), to be held in Dubai from Nov 30, said COP26 president Alok Sharma.

Sharma, who is on a trip to Singapore, said that for the 1.5 deg C target to come off “life support”, countries and companies need to have more discussions about building a financial architecture which can embed climate risk in every single financial decision – while navigating “certainly more challenging” geopolitics of the day.

The British Member of Parliament was delivering a keynote address at UBS’ annual flagship Asia-Pacific Sustainable Finance conference at Sentosa’s Capella Singapore on Tuesday (Oct 10).

The Israel-Hamas and Russia-Ukraine wars and European Union-China tensions aside, financial institutions represent “a wall of money” standing in the way of the estimated US$125 trillion required to fund the net-zero transition, he said.

“Unless we deploy that, unless we get private-sector money into decarbonisation, I’m afraid we’ll lose the fight of keeping 1.5 deg C alive.”

Sharma also said that the world needs more than the multilateral development banks doing more to swell their balance sheets and get some of the “first-loss” financial instruments in place to lower the investment risk for the private sector.

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“What we need as part of that discussion on the financial architecture is to embed climate risk in every single financial decision that is taken,” he said. “If we do that – and we’re prepared to do that – I think you will find a different way of investing.”

Sharma reminded his audience about how much the Glasgow Climate Pact, struck at COP26, was a “fragile win”, and called on countries and companies to deliver on climate action at the approaching COP28 to keep the 1.5 deg C goal alive. 

In COP26’s final few hours, the global agreement had “literally hung in the balance”, he recalled. China and India had taken issue with mentions of “coal phase out”, and wanted the phrase to be changed to “coal phase down”. 

He recalled: “I sat there with our Chinese and Indian colleagues, literally writing out word by word, sentence by sentence, the wording that will be acceptable to them on coal, and I still have that piece of paper at home.”

‘Rational’ to exclude fossil fuels

At the same event, UBS sustainable and impact investing strategist Stephanie Choi gave her take on whether sustainable investing causes investors to leave too much money on the table amid a surge in hydrocarbon prices. 

The question came up in light of the weak performance of environmental, social and governance (ESG) funds – typically underweighted in traditional energy companies – on the back of high fossil prices.

Choi said UBS’ sustainable investing approaches had sheltered funds from direct energy investment volatility, but still allowed these funds to gain from the rocketing energy prices. Alternative energy players picked from a bottom-up, thematic standpoint had rocketed in tandem with the rise in energy prices, she pointed out.

She then tackled the notion that sustainable investing was somewhat irrational, saying: “We are all investors. We are not excluding fossil fuels, just purely from the goodness of our hearts. 

“There is a rational reason why we do not invest in fossil fuels directly, and that’s because we already see the writing on the wall. We already know that the energy transition is causing dislocations in both the supply and demand of energy. As a result, the price dynamics for the next 10 years are going to look very different from those of the past decades.”

Positioning for these long-term trends leads to risk-reward improvements, she said. “Look, after the record profits of last year, even big oil companies are not really investing into new oil fields. So, this is not just us,” she added.

Young Jin Yee, UBS’ co-head of global wealth management for the Asia-Pacific, said the bank is seeing strong client demand for sustainable investments.

Globally, its global wealth management clients’ discretionary assets aligned to sustainable investing strategic asset allocation reached US$22.9 billion in 2022, she said.