The new tone on climate change in Davos felt like a blast of fresh mountain air. With large parts of the global business community heeding the call for action, I’m starting to believe we can still avert a full-blown climate catastrophe.
So to its many critics, I say this: Davos 2020 really did feel different. Whether in panel debates or CEO one-to-ones, I could see how voices that until recently were defending the status quo were now ripping it up. The number of leaders committing to real and measurable action was unprecedented. This was a watershed Davos.
That was the good news. Now, as CEOs and policymakers are greeted by the usual hailstorm of BAU demands on their return home, the really hard part begins – starting by putting those pledges into action. The world will be watching us.
Scaling the Eiger
Second, global leaders now need to be honest about what was not achieved in the Swiss Alps … and what must be done in the short window we have left.
Because although sustainable investing is clearly having a zeitgeist moment, they are still a fraction of the overall pie. According to Refinitiv Lipper data, of the $54 trillion invested in funds globally, less than $2 trillion is in ethical funds (of which ESG is a part). And set that against the $6.9 trillion the world needs to find, every year, to meet climate and development targets according to the OECD.
At times I look at the climate challenge like a climber looks at the north face of the Eiger … and we’ve only just put on our crampons. If the ascent weren’t hard enough, we also need to reach the summit in record time. As Lombard Odier CIO, Stéphane Monier, wrote in a recent note: “current emission rates leave us with around seven more years of business as usual – or one business cycle – before irreversible change is upon us”.
The trillion-dollar opportunity
So this is where I try to inject a little hope. Even if we leave aside our moral obligation to protect the planet on which we all depend, the self-interested financial case for business action is overwhelming. Think of the damage to corporate earnings if (as Bank of America warns) more than 3% of global GDP is lost every year by 2030 because of climate events. ESG-related risks are already wiping billions off companies’ valuations, and as Refinitiv set out at Davos, we think a $4 trillion ‘carbon correction’ to the financial markets could wipe off more still.
Set this risk against the investment opportunity in funding our switch to a sustainable future. Davos started to sketch out an answer but we will need to think creatively and go further than just relying on the big investment banks, many of which are already stepping up to the plate.
Could retail banks play a bigger part by offering deposit holders a new wave of green finance investment products? I imagine pent-up demand from citizens, keen to play their part, is already there.
The financial community will also need to ask itself deeper questions about how and where this wall of money is allocated. A simple assessment of which economies are most populous, growing fastest and most likely to be affected by climate change will tell you that a large slice of these investments will need to be made in emerging markets. How will risk-adverse global investors square the source of that demand with their own investment criteria?
The flow of investment into some emerging markets is further complicated by other ESG concerns – namely around the S (social) and G (governance). The financial community needs to address these issues with candor and in a spirit of partnership.
It’s all in the data
This brings me onto Refinitiv’s piece of the puzzle – the data that must underpin this incredible mission. Without accurate, standardized and verifiable information, we cannot make financial markets sustainable. That’s why we’ve been working for over a decade to create the most comprehensive data set in the sustainability space – from green bond financing and carbon pricing to ESG fund ratings and supply chain risk analysis.
For a year now, our Sustainable Leadership Monitor has been ranking the laggards and the leaders across 70% of the world’s listed companies, as measured by market cap, and we are making great progress in extending it to both public and private companies.
Equally, investors will continue to hold back if we don’t have a common benchmark of metrics and disclosures on which we all agree. That is why we will be working alongside partners in the Future of Sustainable Data Alliance and are also linking up with the International Business Council and the Big Four accounting firms to test and verify their new framework.
The climb on climate is a daunting one and we have frighteningly little time to get there. Yet I am heartened that with the determination I saw at Davos, and a mindset that building a sustainable economy is an opportunity, we’ve finally started the long climb upwards. We must keep it going.
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