Uniform regulation and reporting standards, adapting to a changing environment, and anti-ESG were the main topics of the world’s largest conference for sustainable investing. All parties, including investors, must now take action.
Realistic but hopeful. This was the mood at the world’s largest international responsible investing conference in Tokyo in October. While many believe that achieving the most ambitious sustainability goals within the original timeframe is challenging, the participants agreed that the need for action is greater than ever.
The theme of PRI in Person this year was “Moving from Commitments to Action”. In the keynotes and panel discussions, speakers called for concrete measures from all parties. A more uniform legislation worldwide would create clearer rules for executing and assessing sustainable activities. Governments, companies, and investors have signed many climate and environmental commitments over the years, and now it’s time to take action.
Adapting to climate change requires actions and investments
Jim Skea, Chairman of the Intergovernmental Panel on Climate Change (IPCC), reminded PRI in Person attendees that, as per the organization’s latest report, we are “more likely than not” to reach 1.5 degrees of global warming by the early 2030s. And even if we do achieve the goals of the Paris Climate Agreement in the year 2050, even a modest warming in line with the goal means a massive shift in ecosystems and living conditions.
Investors must remember that climate risks are becoming more prevalent, and their likelihood isn’t reflected in historical data and statistics. There are already many examples of materialized risks in the form of floods, drought, and forest fires. These events can be challenging to bounce back from and thus, risk management should regard the broader environment, not just own investments. An excellent example of this is New Orleans; the city’s appeal hasn’t been the same since Hurricane Katrina and the subsequent rebuilding.
As the effects of climate change are highly local, investors need to pay closer attention to physical risks. Diversification will play an even more significant role in the portfolio from the climate perspective. An upcoming challenge is the need for local-level investments, requiring funding funneled to smaller projects worth some tens of thousands of dollars.
Despite the warming climate, we can’t throw in the towel. As Jim Skea stressed in his talk, every fraction of a degree of warming has a significant impact. There are ways and technologies to mitigate global warming, and many of them, such as renewable energy and electric transportation, are already commonplace. However, there’s plenty of room for improvement in adapting to climate change, meaning living with the materialized risks. According to one of the speakers at the conference, there are already more climate refugees in the world than people fleeing war and political oppression.
Disarming counterreactions with clear messaging
Sustainability efforts are also sparking opposition. “Anti-ESG”, which has gained ground in the US, was a recurring theme in Tokyo. Populistic counterreactions raise concerns, but the critique is also understood when it’s directed towards acknowledged issues such as the lack of shared actions and metrics.
Critique and the anti-ESG movement force legislators, companies, and investors to communicate more clearly why and how different sustainability efforts are executed and measured. It’s important to highlight the many reasons for ESG; in addition to value-based choices, the drivers for responsible legislation, business, and investments can be material, namely risk management and discovering new opportunities. Clear communication is a powerful tool in disarming critique.
The prevalent mood in PRI in Person was that, so far, the different parties have promised a lot, and now it’s time to take action. More universal legislation, technologies that help adapt to climate change, and much-needed investments are efficient ways to help us survive on our warming planet.
We at Evli recognize the risks and opportunities of change. Our climate targets and roadmap for carbon-neutral asset management, launched in the spring of 2021, as well as the intermediate goals provided for the Net Zero Asset Managers initiative in the summer of 2023, show way towards net zero by 2050. We also offer a climate portfolio strategy that aims to lower carbon emissions and direct investments in climate solutions according to the customer’s needs.
Georgi Agiashvili
