It is (almost) all about climate change
Though not a surprise, the issue of how to act on climate change and accelerate a transition to a low carbon economy seems to be by far the issue getting the most attention by the investor community. Investors are making a promise to engage further with businesses, require more transparent climate data reporting and more thorough risk analyses directly from the companies and through asset owners. Through initiatives such as the Climate Action 100+ , global investors are driving business transition engaging with companies in order to curbe emissions, improve governance and climate disclosures. Other initiatives, such as The Portfolio Decarbonization Coalition, tackle the issues from the other end, withdrawing capital from carbon intensive companies and re-investing in carbon-efficient companies.
Investors are worried about stranded assets, i.e. being stuck with assets that have no future returns. Therefore they are requesting of companies (and analysts) to better map the risks that businesses have related to climate change. And then it is not only the focus on a business’ emissions. But also how anticipated climate change and its effects (floods, droughts and so on) may impact the business, e.g in terms of resource scarcity, security of their supply chains, costs of energy etc. It could also, in many cases be so that the issue of climate change poses an opportunity for certain types of businesses, which of course investors are also interested to know.
The next step investors are taking is to focus further on impact investing. To find areas where good returns and climate change mitigation and adaptation goes hand in hand. Green bonds is one example, where the market is growing really fast. Here the EU is now directing its effort into a common taxonomy, enabling a unified classification system on what can be considered ”green”. Read more here about the EU Taxonomy and other proposals regarding sustainable finance.
Investors are not only engaging and requiring of corporations to have climate disclosures. They also seem to increasingly investigate corporate actions. To see if there is a match between the talk and the walk. An example here is the Church of England’s pension fund who teamed up with the Swedish national pension fund AP7 , to investigate how corporations have a mismatch between what they state in terms of commitment to the Paris agreement and the lobbyists that they are indirectly financing. See more in a short video here. As was stated by the Swedish AP7 ”At this point in time we find it unacceptable that companies counteract ambitious climate policy, either directly or through their business organisations. Lobbying on climate issues should be evaluated, managed and reported on transparently. We are hoping this will become a natural component of companies’ sustainability reporting.”