Investors and climate in 2020

Cracked Ground From The Indian Subcontinent

Last year’s international climate conference, COP 25 in Madrid, opened to the news that the world’s average temperature is rising so fast we could be on course for 5°C of warming by the end of the century. In Madrid however, there was little in the way of the bold government commitments to cut carbon that are needed to tackle the climate crisis.

This makes 2020 even more critical. Global emissions are continuing to rise at 4 per cent per annum but they must peak this year to give any chance of limiting warming to 1.5 °C and maintaining a relatively stable climate system.

Yet government promises are only part of the story. Much of the world’s wealth is under private control, with global invested capital now totalling around $300 trillion in assets.  Those that control this huge pot of capital have a vital part to play too. The choices investors make when it comes to the companies, projects and instruments in which they invest will all play their part in determining future climate scenarios.

Climate risk for investors is getting real

Investor that choose to ignore climate change do so at their peril.

Earlier this year 215 of the biggest global companies reported $1trn already at risk from climate impacts and analysis by the UN-supported Principles for Responsible Investment released at COP25 found that $2.3trn of company valuation could potentially be lost by 2025 as climate policies start to impact. Those that act now will both safeguard against climate related risks and benefit from the growth of the low carbon economy.

Investors need to use their influence as shareholders to speed up the rate at which climate change is tackled. They have plenty of ammunition with which to do so, with reems of data on corporate carbon emissions and environmental performance at their fingertips.

2019 saw data coming in thick and fast to enable investor climate action. At CDP, we released investor research drawing on our bank of data on over 8,400 listed companies to rank the steel, shipping, automobile and consumer good sectors in terms of readiness for the low carbon and environmental transition.

We learnt at COP 25 that 285 companies, with more greenhouse gas emissions than France and Spain combined, have committed to emissions targets in line with what science says is needed to keep global warming at 2°C or below. If met, these ambitions will reduce global emissions by 265 million metric tons, equivalent to closing 68 coal-fired power plant. We also saw further evidence that cutting emissions can cut costs, with suppliers to 125 major corporates reporting savings of $20 billion from cuts to carbon.

It is data like this that investors should use to help drive transparency, engagement and ultimately decide which companies will be part of the future economy.

Investor action equals results

Investors that choose to act on climate data are bringing about real change.

When, in mid-2019, a group of 88 investors targeted over 700 companies – such as Exxon Mobil, Amazon and Volvo for not reporting environmental information they saw a 14 per cent increase in disclosure.

More recently, London based TCI Fund Management Ltd., which manages more than $30 billion used CDP’s environmental data as the basis for writing to companies like Airbus and Moodys, threatening to vote against management, if they don’t improve their greenhouse gas emissions reporting.

Where asset managers stand on climate is increasingly under public scrutiny too, with retail investors and IFAs keen to know which funds are making a positive climate impact, and which are failing to react. Tools such as  Climetrics, which provides climate impact rating for investment funds allow any investor to gain insight into investor action on climate change, and modify their portfolio accordingly.

Investors united on climate

Despite their powerful voice, investors in listed equities are of course just one part of the global financial system.  The debt markets, banks and private equity funds all have their part to play. As we look forward to 2020, when global emissions must be checked, the whole financial system needs to work together, something which we at CDP will be investing effort and energy in next year.

By the time we reach November’s COP 26 in Glasgow we need to be much further down the road to creating an ‘Ambition Loop’ where bold government policies and private sector leadership reinforce each other.

Investors have no more excuses. They need to act on climate data now.

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