For all the environmental, social and governance (ESG) challenges companies face today, there is one which unites them all – a challenge dwarfing all others in its urgency.
‘E’ for the environment. ‘E’ for the elephant in the room. ‘E’ for the emergency we all now face – the failure of our fossil-fuel civilisation to address climate change. The urgent threat of global warming demands a revolution in our energy systems. We are late, but not too late. As asset managers and investors, we still have the power to change the world and help to shift trillions of euros towards climate-friendly investments.
An investing revolution
The EU’s new benchmark regulations could bring about a genuine revolution in investing practices and lead to a world in which equity flows and company valuations are dependent on carbon footprint. This could be achieved even without taking a hypothetical carbon cost into account, as it would be built on a relative comparison basis between companies in the same sector. Publication of the temperature scenarios of the major benchmarks will unleash a shock on the listed markets. No one in asset management is, or can be, free of benchmarks. However, this shock could also stimulate a virtuous circle to emerge in energy transition financing, where we see a race to the bottom of the thermometer in institutional portfolios.