On their own, capital markets cannot save the planet | Your money



NEW YORK – (BUSINESS WIRE) – November 11, 2021–

Despite attracting a wall of money, capital markets ignore climate risks due to policy confusion and lack of clarity on the financial impact, according to a global survey by KPMG, CREATE- Research and the CAIA Association.

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Anthony Cowell, Co-Author and Head of Asset Management, KPMG Islands Group (Photo: Business Wire)

Based on interviews with nearly 100 executives of large investment and pension companies with $ 34.5 trillion in assets, the “Can Capital Markets Help Save the Planet? “ The survey found that only 14% of those surveyed believed that actions currently take climate risks into account. The corresponding figure for alternative investments was 11% and for bonds 8%.

Respondents also indicated that progress is most evident in publicly traded stocks, as the stewardship opportunities they offer are now seen as critical to creating value in the transition to a low-carbon future. Overall, climate pricing is more evident in the energy sector and less evident in capital intensive projects with longer time horizons to market.

“There is currently no clear line of sight between climate investment and its impacts. Green portfolios have not yet been assimilated to a green planet ”, said Anthony Cowell, co-author and head of asset management, KPMG Islands Group.

The main obstacle seems to be the inaccurate nature of climate science and its effect on GDP. There is no historical document or experience on how our economic and financial systems can or will respond to these effects. The problem is only compounded by the apparent lack of clarity in the policy directions of governments and regulators who should encourage a low-carbon future. Intentions precede actions. The opportunities and risks inherent in climate change have been difficult to assess.

“The invisible hand of the markets must be compensated by the visible boot of the governments”, said Amin Rajan, co-author of the report and CEO of CREATE-Research.

To date, no jurisdiction has an established set of rules that properly integrate environmental and social costs into companies’ financial reporting, especially in a way that makes it easier to price discovery for climate risks. For this reason, market-based incentives and investments in low-carbon technologies evolve slowly. Progress is also hampered by the lack of a uniform carbon price in the current generation of emissions trading systems, which remain at the forefront of the fight against climate change.

However, two events are noted as critical turning points. One is the new green agenda for key economies, involving, among other things, the adoption of clean energy standards, mandatory reporting of the carbon footprint of listed companies and a review of the fiduciary rules on the inclusion of factors. environmental, social and governance. in the portfolios of pension plans; the other is the United Nations COP26 in Glasgow from October 31, 2021. “Respondents see this as vital to the carbon pricing debate, but sustainable action in Parties’ home ports is next. essential step “, said William Kelly, third co-author of the report and CEO of the CAIA Association.

According to 84% of survey respondents, more coordinated intergovernmental actions are likely after the Glasgow summit, and capital markets are bracing for stronger tailwinds following progress on three key fronts: carbon pricing, carbon pricing, innovation in alternative energies and mandatory data reporting.

When asked if capital markets are likely to start taking climate risk into account on a significant scale, 42% of respondents said ‘yes’, 30% said ‘maybe’ and 28% said said “no”. Over 60% of respondents expect all asset classes to move further towards pricing climate risks over the next three years.

The report concludes that funneling trillions of dollars of capital into the technologies needed to power a low-carbon economy requires a huge and concerted effort in terms of policy as well as incentives. Without these, some respondents fear that if the political inertia of the recent past continues to allow risks to build up in the global financial system, a “Minsky moment” will occur: a collapse in securities prices due to panic. sudden at a certain future date.

Download the full report here.

View source version on businesswire.com:https://www.businesswire.com/news/home/2021110005804/en/

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PUB: 11/11/2021 12:01 a.m. / DISC: 11/11/2021 12:01 a.m.


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