Tuesday, October 19

Investors control climate action | Power of green

It has been a bad year for the big oil companies. Oil and gas stocks, famous for their explosive booms and busts, have not underperformed the S&P 500 stock index in more than four decades.

The drop is due in part to the coronavirus pandemic that has devastated oil-dependent industries, and in part to a long overdue settling of scores for companies with unsustainable business models.

According to the Intergovernmental Panel on Climate Change (IPCC), will take around $ 2.4 trillion investment in clean energy every year until 2035, among other actions, to avoid catastrophic climate change. But the incentives for such investment go beyond fighting climate change. Environmental, social and governance (ESG) investments, also known as sustainable investments, have both environmental and economic merits.

In fact, most sustainable funds now outperform traditional ones in multiple time horizon scenarios. The Harvard Business Review reports that ESG considerations, including material issues such as climate risk and board quality, have become much more prevalent, especially among “long-term investors” in recent years.

As a result, the green investment market is exploding. According to research by BloombergNEF, a record $ 465 billion of sustainable debt was issued in 2019. More than half were green bonds, the proceeds of which go to environmentally friendly projects. Initiatives such as the UN-convened Net-Zero Owner Alliance, a group of institutional investors supporting net-zero greenhouse gas emissions by 2050, are also gaining ground.

How investors can take the first step

To get the most out of sustainable investing, investors must first understand the climate impact of their investment portfolio and exposure to fossil fuels. One way to do this is Assessment of the capital transition of the Paris Agreement (PACTA), developed by the 2nd investment initiative, a non-profit think tank. Users can upload their portfolios to the platform to see how their investments align with the IPCC 1.5C scenario.

1) the Assessment of the capital transition of the Paris Agreement (PACTA) of the 2nd Investment Initiative: Determine how your financial portfolio aligns with various climate goals, even if your investments meet the important criteria outlined by the Paris Agreement and the IPCC 1.5C scenario.

2) CICERO Shades of Green: Assess the impact of bond frameworks on a scale ranging from “light green” (eg, early emissions responses) to “dark green” (eg, moving completely away from fossil fuels).

3) Knowledge Center of the Climate Disclosure Task Force: Research TCFD recommendations, including guidance for companies regarding weather-related disclosures, peruse case studies, and find helpful articles.

4) Carbon Disclosures Project (CDP) Scores: See the companies and cities that set an example as world leaders in environmental performance.

Christa Clapp, managing partner at CICERO Shades of Green, which provides independent reviews of the green bond market, says renewable energy is an “obvious and clear answer” on where to start with viable ESG investments. She notes that green bonds can be ranked by their climate impact. “We rate the bonds as light, medium or dark green,” he explains. “That stems from climate research showing that we need all kinds of initiatives, even at the ‘light green’ extreme, for example early emission reductions, all the way to the dark green, where we are moving completely away from fossil fuels, in order to achieve our climate goals. ”These ratings can help guide investment decisions.

Investors could, for example, choose to invest their money in companies that are reducing their carbon footprint by reducing direct emissions from energy use, improving energy efficiency, or greening their supply chains. Companies that build electric vehicle infrastructure, implement circular economy solutions, or bolster the recycling industry within the consumer goods sector are further examples of investments with a strong ESG profile.

The Working Group on Weather-Related Disclosures (TCFD) offers another set of resources. It describes a framework for disclosing climate-related risks and opportunities based on four pillars: governance, strategy, risk management, and metrics and objectives. The TCFD recommendations comprise 11 specific climate-related disclosures that companies should include in their annual reports to provide information useful for decisions to investors. TCFD’s “Knowledge centerIt provides a wealth of information for investors looking to green their portfolios.

Christine Sobieski, ESG’s Director of Participation at Ørsted, one of the world’s largest renewable energy companies, recommends three considerations for investors starting to invest in ESG: Commit to a greener portfolio, Report on your progress through the TCFD framework and actively encourage change in the companies featured in your portfolio.

Why companies should attract sustainable investment

Business people shaking hands across the table

Ørsted It can serve as inspiration for companies looking to attract sustainable investment and ultimately become more profitable.

“Over the past decade, Ørsted has transformed from a fossil-based energy company to a renewable energy company,” says Sobieski. “Reducing carbon emissions is fundamental to our strategy, both for the health of our planet and to remain competitive as a company.”

Ørsted tripled its market value in the past three years to more than $ 75 billion and was named the most sustainable company in the world on the 2020 Global 100 Index. “We have shown that it is possible to significantly increase profitability and market value by making decarbonisation the cornerstone of business strategy,” says Sobieski.

For other companies looking to commit to climate action, resources like TCFD Status report 2020, the recently released Guidance on Scenario Analysis for Non-Financial Firms and Guidance on Integration and Disclosure of Risk Management It can be useful.

“Understanding, identifying, and ultimately addressing the material financial risks posed by climate change is becoming commonplace in the global business community,” he says. Didem Nisanci, Global Head of Public Policy for Bloomberg LP and a member of the TCFD Secretariat. “Sixty percent of Fortune 100 companies support or report alignment with TCFD’s recommendations.”

Consistent disclosures, Nisanci says, benefit companies in many ways. On the one hand, they help increase awareness and understanding of climate-related risks and opportunities, which can result in better strategic planning. Second, companies that transparently report on climate risks can proactively address investor demands for climate-related information. Ultimately, this can lead to increased confidence from investors and lenders.

Sobieski points out that addressing the climate emergency is not just about technological solutions and financial viability, but also about the will to act, now. “If companies and investors join forces to reduce emissions at an unprecedented rate and scale, they can help make the 2020s a decade of green action to stop global warming at 1.5 ° C,” he says .

“Investing in climate action has never been more urgent and profitable,” he adds.


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