The growing ‘carbon neutral’ awareness has seen scores of countries pledge to go beyond targets set out in the landmark 2015 Paris Agreement. But the international effort to fight climate change took a step backward last weekend after envoys at a marathon round of UN talks watered down language on issues they had agreed on in previous years.
A rift between industrial and developing nations at the Madrid climate meeting known as COP25 on how to use carbon markets weakened a deal that could have unlocked hundreds of billions of dollars in aid for climate-related projects.
For financial markets and companies, the biggest disappointment was the lack of progress on markets.
Despite the setback, incorporating environmental, social, and governance (ESG) metrics are getting increasingly crucial in the financial world’s response to climate change.
Here’s a look at how.
Diplomats from the European Union’s 28 countries have agreed to advance with key legislation for green financial products, bringing the bloc a step closer to embedding environmental goals in standards for banks, money managers and insurers.
BlackRock, Vanguard Group and JPMorgan Chase & Co are failing to live up to their promises to push companies on climate change, according to a group of investors.
ESG strategies may help investors beat market returns and spark a revival in active management, according to Hubert Keller, head of Lombard Odier’s asset-management business.
The Dutch activist fund that has filed shareholder resolutions pressuring major oil companies in Europe to take action on climate change has set its sights on the US.
For sure, the “green deal” doesn’t come cheap.
The European Commission estimates that its paradigm shift to ensure environmental safeguards will require as much as €290bn in extra investment annually for energy systems and infrastructure from 2030. Poland expects the move to cost its economy €505bn.
Matter-of-factly, ESG investing now seeks to address concerns from gender equality to worker rights to new ways to provide funding to charities working in poor countries.
Last September, 12 of the world’s largest investors - including Allianz, Swiss Re, and Zurich Insurance Group - committed to making their investment portfolios carbon-neutral as part of the Net-Zero Asset Owner Alliance convened by the UN. As a result, $2tn of assets were deployed using ESG analysis.
A recent Deutsche Bank report suggested “the S in ESG will increasingly be the ‘next big thing’ when it comes to investor focus.” The claim is that long-term returns will be higher from investing in companies that pay attention to the social part of their business.
A recent analysis by Moody’s Investors Service suggested social considerations posed “high credit risk” to $8tn of debt that it assesses. Moody’s said emerging-market governments, healthcare providers, heavy industries and consumer sectors had the highest risks related to the social.
More than 1,500 investment managers have signed up to the UN Principles for Responsible Investment and the ESG sector is now the fastest-growing part of the market.
The message for investors is loud and clear. As asset managers are increasingly incorporating ESG equations into their decisions, bad behaviour can be increasingly expensive for companies.
