Last December’s UN Climate Change Conference (COP21) in Paris recommended that investors could contribute to the climate-change mitigation. Against a growing consensus that limiting global temperature increases to less than 2°C might prevent catastrophic change, the question facing the investment community is how to achieve a satisfactory return in a 2°C world.
Numerous initiatives, from the Montreal Carbon Pledge to the Portfolio Decarbonization Coalition, have sought to address the elements required for a climate-aware portfolio, whether by encouraging investors to assess the CO2 output of holdings or curb their exposure. Of course a raft of measures analyzed by various experts need to be considered by the investors.
A research paper by Mercer ‘Investing in a Time of Climate Change’ came to the conclusion that a rapid transition towards a low-carbon economy would come at a significant financial cost to investors. But they have to turn their attention to other real assets such as agriculture and forestry. So, they already reconsider their exposure to certain industries, such as carbon energy producers.
There are examples of asset owners who have reduced stakes in coal. But the real challenge facing investors is not ethical, but one of data. In a system reliant on accurate inputs, the recording of emissions is weak. The scandal that engulfed Volkswagen deficiency in 2015 illustrates this.
Eric Borremans, a vice-chair of the Institutional Investors Group on Climate Change (IIGCC) says that “Investors also need sector and company-specific data to guide top-down and bottom-up investment decisions and to engage with companies which are laggards in their industry”.
The absence of data from laggards, and reporting inconsistency, are some of the hurdles, according to Julie Raynaud, the lead author of Carbon Compass.
Source: IP Real Estate. You may find the full article here