G7 countries commit to major sustainability goals
The Group of Seven (G7) gathered in the UK in June, and announced several major commitments, reflecting a broad focus on sustainability factors.1 They included commitments to provide one billion doses of the COVID-19 vaccine globally; to seek to limit the impact of climate change to 1.5 degrees Celsius; to halve emissions over 2010-2030 and to reach net zero carbon emissions by 2050; to halt and reverse biodiversity loss by 2030; and to tackle the growing problem of debris in space.
Notably, the leaders declared support for mandatory climate-related financial disclosures based on the Taskforce on Climate-related Financial Disclosures (TCFD) framework, and added that they “look forward” to the establishment of the Taskforce on Nature-related Financial Disclosures and its recommendations2.
In a communique before the summit, G7 climate and environment ministers committed to “an absolute end to new direct government support for unabated international thermal coal power generation by the end of 2021”.3
Key implicationsStrong momentum is building worldwide to tackle climate change, and investors are increasingly likely to be required to disclose material climate risks in their portfolios – if they are not already. The drive to transition towards a low-carbon economy will have far-reaching implications for the global economy and society, which are likely to have implications long-term portfolios. |
Net Zero Asset Managers initiative grows to 87 investors managing $37 trillion
The Net Zero Asset Managers initiative is a group of international asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5°C. The group is also committed to supporting investing aligned with net zero emissions by 2050 or sooner.
Launched in December 2020 with 30 signatories, the initiative has grown to include 87 signatories with nearly $37 trillion in assets under management (AUM), representing nearly 40 percent of the total assets under around the globe4.
Key implicationsSignatories to the initiative, including Insight Investment, make a range of specific commitments, including to “work in partnership with asset owner clients” to achieve net zero emissions “by 2050 or sooner across all assets under management”.5 |
Global asset managers with $41 trillion urge governments to adapt climate policy
A joint statement by 457 investors managing more than $41 trillion in assets, amounting to around 37% of all global assets under management, urges a global “race-to-the-top” on climate policy6.
Issued ahead of the G7 summit, the letter calls for governments to strengthen commitments and policies with regard to achieving net-zero emissions targets, and to implement mandatory reporting on climate risks in line with TCFD recommendations.
Key implicationsThe investment managers signing this letter – which include Insight Investment – and their AUM makes this the strongest call in many years from the investment industry focusing on climate change policy. Yet another call for mandatory TCFD disclosures highlights the momentum behind this framework across global markets. |
Pressure on energy sector intensifies
The International Energy Agency (IEA) called for an end to fossil-fuel expansion and investment as it published an extensive report with over 400 ‘milestones’, declaring that current climate targets require “nothing short of a total transformation of the energy systems that underpin our economies”.7
Separately, all on the same day, big oil companies Exxon, Chevron and Shell each faced significant challenges regarding their approach to climate change. Exxon shareholders voted in activist board members, partly in response to the criticisms over the company’s approach to energy transition8; a court in the Netherlands ordered Shell to increase planned cuts to greenhouse gas emissions9; and the majority of shareholders supported a call for Chevron to target reduced emissions, including those of its customers (known as Scope 3 emissions)10.
Key implicationsEnergy companies play a significant role in global markets and investor portfolios. Pressure on the energy sector to act to mitigate the impact of climate change, and to adapt to a low-carbon economy, highlights the unique risks and opportunities in the sector for responsible investors. Please contact your Insight representative to understand more about the energy exposure in your portfolio. |
New initiative, ‘ASCOR’, to assess sovereign climate risks launched by major bodies
Asset owners, industry bodies and global initiatives have jointly announced the ASCOR (Assessing Sovereign Climate-related Opportunities and Risks) project11.
Asset owners the BT Pension Scheme and the Church of England Pensions Board; the UN-convened Net-Zero Asset Owner Alliance; the Coalition for Environmentally Responsible Economies (Ceres); the Institutional Investors Group on Climate Change (IIGCC); the Principles for Responsible Investment (PRI); and the Transition Pathway Initiative (TPI) are “joining forces to create a practical tool to support investors in their assessment of sovereign climate-related risks and opportunities”.
They aim to develop a framework that will ultimately result in annual assessments that investors can use in research, decision-making and engagement with sovereigns on climate change.
Key implicationsThe focus has sharpened on ESG risks faced by countries and how to manage them. Insight’s proprietary Prime sovereign ESG risk and impact ratings aim to help investors assess the ESG risks and opportunities associated with sovereign issuers, and to consider how a country aligns with the UN Sustainable Development Goals.12 |
Research suggests ESG factors have a much stronger impact on corporate funding costs in Europe relative to the US
The funding differential between the best and worst-in-class companies, when compared with regard to their ESG risks, is significant for European investment grade corporate debt post the Paris Climate Agreement, and more recently for European high yield issuers, according to research from JPMorgan13.
However, US investment grade and high yield spreads show low signs of ESG risk awareness. Within emerging markets, the researchers only found statistically significant results for Asia ex-China issuers.
According to their analysis, investors appeared to reward higher-ranked issuers (according to ESG scores) from ‘good’ sectors more than higher-ranked issuers from ‘poor’ sectors.
Key implicationsThe divergence between US and European markets’ appreciation of ESG risks suggests there may be risks that are not priced into markets. These may present opportunities for investors to exploit. |