The Zero-Hour Sessions at COP26: Lombard Odier and the University of Oxford offer exclusive insights of report: ‘Predictors of success in a greening world’

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The Zero-Hour Sessions at COP26: Lombard Odier and the University of Oxford offer exclusive insights of report: ‘Predictors of success in a greening world’

Throughout COP26, Lombard Odier is in Glasgow to host The Zero-Hour Sessions: a series of conversations on the relationships between nature, policy and the path to net zero. The third Session, held on Wednesday 3 November, saw Patrick Odier, Senior Managing Partner discuss ‘Predictors of success in a greening world’, an exclusive report produced by Lombard Odier in partnership with The University of Oxford that examines whether countries are doing enough to build back greener and how governments could increase prosperity through sustainability.

“We believe that this report represents a vital contribution to the conversation around the challenges and, crucially, the opportunities of the transition to net zero,” says Patrick. “We also understand that inter-sector partnerships—how to forge them, and what they can offer—fall into both of those categories. This report is a product of a fruitful partnership between finance and academia that we’re proud to have established with The University of Oxford. And it is why we’re looking forward to publishing the report during Building Bridges Geneva, which aims to promote the forging of such partnerships, later this month.”

Watch some key highlights of the event here:

We believe that this report represents a vital contribution to the conversation around the challenges and, crucially, the opportunities of the transition to net zero

The net zero winners and losers

Introducing the report, Sir Martin Smith, Founder, Smith School of Enterprise and the Environment, discussed the partnership between Lombard Odier and The University of Oxford .“Lombard Odier has recognised that out of the great threat of climate change, we face the greatest opportunity,” said Sir Martin. “In the end, if we are going to solve this problem, companies will play an indispensable role. That is why our school has a programme that focuses on investment, financing the transition, and integrating environmental issues into financial management. And, as such, our partnership with Lombard Odier is the perfect example of why our school exists and how it should work.”

In an exclusive preview of the report’s key findings, Professor Cameron Hepburn, Director of the Smith School of Enterprise and the Environment at The University of Oxford, spoke about the emerging winners and losers among countries, and the differences between them, in the race to net zero.

The report found that one of the most important characteristics of a ‘winner’ is the capability to produce complex ‘green products’, like renewable technologies and water management technologies. And, in turn, a significant predictor of tomorrow’s ‘winners’ is countries’ potential to do so in the near future. “The fundamental idea here is that an economy doesn’t leap from burning oil to being able to produce green products overnight,” Professor Hepburn explained. “Instead, the transition unfolds in stages. As such, you can watch an economy grow over time and predict where it’s likely to go in the future. That’s why we’re creating the Green Complexity Index (GCI), which ranks countries by the complexity of their green exports; alongside the Green Complexity Potential (GCP) metric, which shows the proximity of a country’s economy to the high-value green products it could be producing. Crucially, GCP is a strong predictor of a country’s future placement in the GCI and, therefore, the winners of tomorrow.”

The fundamental idea here is that an economy doesn’t leap from burning oil to being able to produce green products overnight… Instead, the transition unfolds in stages

In terms of renewable technologies such as solar panels and wind turbines, China accounted for 22% of such exports globally between 2015 and 2019, emerging as a clear winner in that aspect of the report. Germany, USA and Japan rounded out the top four, accounting for 12%, 10% and 9% of global renewable technology exports, respectively.

Reaching net zero by 2050 will require significant and ongoing increases in the production and export of green products. Here, the report found export value increases across many categories of such products, with the top three being renewable energy, carbon capture & storage and wastewater management & potable water treatment. Momentum also emerged as an important variable, with countries that are already ranked high on the GCI tending to score high on GCP.

…Switzerland has the potential to generate far more renewable energy than it currently needs, creating the tantalising prospect of growing its exports of green energy

The report included case studies for seven different countries. One of them is Switzerland, which the report showed faced a mix of challenges and opportunities. On the one hand, even as Switzerland continues to score well on overall economic complexity, both its GCI and GCP rankings declined significantly during the study period, from 6 to 23 and 18 to 47, respectively. On the other, Switzerland continues to be a competitive exporter of railway parts and biogas production equipment. Opportunities also abound in a sector that looks set to grow by a factor of ten by 2040: wind turbine parts. And Switzerland has the potential to generate far more renewable energy than it currently needs, creating the tantalising prospect of growing its exports of green energy to a burgeoning EU market.

 

The road to net zero

Sir Martin and Professor Hepburn also joined panellist Lord Bilimoria, Chancellor of the University of Birmingham; Federal Councillor Ueli Maurer, Head of the Swiss Federal Department of Finance (FDF); and Daniela Stoffel, State Secretary for International Finance at the FDF; for a conversation moderated by Patrick Odier on redeploying capital in the transition to net zero.

On the UK’s success in green product exports, Lord Bilimoria said, “Six years ago, many businesses would have been sceptical. But at COP26, business is here in a massive way. Now everyone believes. I’m proud to say that the UK, along with Switzerland, are doing great.”

With really good allocation of capital and socially responsible financial engineering around risk allocation, much of the real economy will hum

On the topic, Professor Hepburn noted that this is an important factor in scaling up many green technologies, such as renewables. “With really good allocation of capital and socially responsible financial engineering around risk allocation, much of the real economy will hum,” said Hepburn.

Lord Bilimoria also emphasised the importance of government incentives in driving the adoption of the technologies we need to achieve net zero. “We should be incentivising, for example, the greening of homes, and the government can do a lot here,” said Lord Bilimoria. “Heating accounts for a third of global emissions. And of the 29 million houses in the UK, only 1 million meet the standards required to reach net zero by 2050.”

The insightful conversation also covered topics such as the advantages of accelerating the transition to net zero, how the City of London can contribute to UK ambitions around decarbonisation, how net zero will change the job market, and areas in need of increased focus if we are to successfully green the economy.

Important information

This document is issued by Bank Lombard Odier & Co Ltd or an entity of the Group (hereinafter “Lombard Odier”). It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a document. This document was not prepared by the Financial Research Department of Lombard Odier.

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