Decarbonising the atmosphere is the defining goal of the environmental movement, and one that financial institutions are playing a vital role in achieving.
They are working towards meeting targets set over the next 25-40 years of reaching a state in which the net amount of carbon released into the atmosphere by economic activity is zero. In that way it’s that global warming will be arrested along with the catastrophic impact that will have on the world.
Many innovative ideas have been put forward towards achieving the net-zero goal. But a key challenge in assessing their success is monitoring and measuring their impact. Right now, there is a lack of accurate and good quality data to help institutions make decisions about how they direct capital towards helping companies and projects meet their net-zero targets.Overcoming this challenge will be a central theme in A-Team Group ESG Insight’s next webinar, entitled “From Data to Impact: Empowering Asset Managers and Owners with ESG Solutions for Net Zero Transformation”.
High-level speakers from the data provision and consumption sides of the ESG equation will offer their expertise and insights into this thorny issue, the resolution of which is likely to unlock powerful new tools to aid progress towards a carbon-free future.
The speakers comprise: Elisabeth Seep, head of sustainable investing products at Rimes; Anne Scott, global climate solutions lead at Aegon Asset Management; Wendy Walford, head of climate risk at Legal & General; and, Laurent Babikian, global director of data products at CDP.
Group Effort
The importance of financial institutions in enabling net-zero was articulated by Legal and General’s Walford.
“Climate change is a systemic issue that will increasingly impact on both the economies and societies in which we operate; it cannot be ignored,” she told ESG Insight. “As a financial institution, we can have an impact beyond the areas of our direct control. Alongside the changes we need to make to our own business, we can support the real economy in transitioning away from greenhouse gas emissions.”
Recognising this, financial institutions have clubbed together to help find solutions to unblocking the data limitations associated with the path to net-zero. The Net Zero Asset Managers (NZAM) initiative was launched in 2020 to provide support to signatories and has a commitment to decarbonising their activities by 2050. Its signatories oversee a total of US$59 trillion.
The Net Zero Asset Owner Alliance (NZAOA) comprises banks, pension funds and other institutions with a similar 2050 goal to reach net-zero within their activities and investments.
The key data issues were concisely laid out in a 2022 report by the Network for Greening the Financial System, published by a working group co-chaired by the International Monetary Fund and the European Central Bank.
It identified three primary challenges:
- A lack of coverage of private and non-listed companies due to insufficient self-reporting;
- A shortage of science-based forward-looking targets and net-zero pathways on which institutions can make investment- and risk-related decisions;
- Insufficient auditing required to foster trust in the data.
In its recommendations, the report concluded that solutions could be found through the closer alignment of reporting standards and taxonomies, the creation of defined and comparable metrics that can be commonly used by institutions, and better use of existing data sources.
Unique Challenge
While these data issues are being equally experienced in all parts of the ESG investment space, net-zero presents some of its own unique challenges. Reaching those goals requires companies to change their operations and sometimes their business models. That’s especially so in the way they source energy; often net-zero pathways will rest largely on a move from fossil fuel-generated energy to renewable sources.
Any such changes pose operational risks that can affect a company’s performance. These are risks that investors thinking of funding the companies’ projects or buying a stake in them, will want quantified and incorporated in their own research. In response, a number of companies have launched transition risk measurement products, including Bloomberg. But, again, an absence of specific and good quality data is hindering progress, as this year’s A-Team ESG Data and Tech Summit London discussed.
The incentives to getting the data piece right are manifold for institutions; not only will it help them direct capital towards the projects that will bring about a carbon-free future, but it will also be good for business.
“Addressing climate change brings unprecedented investment opportunities, and through our transition plan we intend to be well positioned to realise them,” said Legal and General’s Walford.
- From Data to Impact: ****Empowering Asset Managers and Owners with ESG Solutions for Net Zero Transformation webinar will be held on September 18 at 10:00am ET / 3:00pm London / 4:00pm CET. Register here to attend.
Subscribe to our newsletter
