Last week can be seen as the defining moment when climate change finally turned serious.
I am not talking about the anticipated increase of wildfires, droughts, floods and other natural calamities, although we are facing the worst of what Mother Nature will throw at us this year. I’m not necessarily talking about any breakthroughs in the UN process, although they may be coming up for COP26 in November. And I’m not even talking about net-zero commitments by companies, the government, and others, although they’re happening at an almost daily clip – so much so that they’re no longer news.
I’m talking about the markets, plain and simple.
Consider these stories from last week:
“Carbon is now a discussion on the corporate earnings call,” Reported financial Times. The FT said corporate executives are uttering the word “carbon” on earnings calls at a “rapidly growing rate, treble in the past three years, to about 1,600 per quarter”. It cited data from global finance firm UBS showing that investments in portfolios of companies with low emissions intensity – the amount of carbon dioxide emitted per unit of revenue – generated annual returns of 1 percent higher than the MSCI World Index of developed market stocks.
It is important to recognize key moments and milestones that predict a potentially positive outcome. Last week was one of those moments.
“Green finance goes mainstream, trillions behind global energy transition,” read Title This weekend in the Wall Street Journal. Wealth in investment funds partially focused on the environment reached nearly $2 trillion globally in the first quarter of 2021, more than tripling in three years. Investors are investing $3 billion daily in these funds, and every day more than $5 billion worth of bonds and loans designed to fund green initiatives are issued.
“Banks Always Backed Fossil Fuels Over Green Projects – Until This Year,” Reported Bloomberg. It noted that banks have invested more than $3.6 trillion in fossil fuel projects – nearly three times more than green projects with total bond and loan backing since COP21 in 2015. However, at least $203 billion of bonds were found in data covering about 140 financial-services institutions around the world. and loans for renewable energy projects and other climate-friendly enterprises as of mid-May, compared with $189 billion for fossil-fuel projects.
Carrots and sticks
So, why is the financial world turning green? Simply put, it boils down to carrots and sticks.
First, the sticks. Obviously, the climate. Last week, the International Energy Agency (IEA) made official Even casual students of the climate crisis have long known: to have any chance of reaching net-zero greenhouse gas emissions by 2050, investors must immediately stop funding new oil, gas and coal projects. Those investors are already well aware that as the effects of the changing climate increase, increasing volatility and uncertainty will affect the market. They are linking a large part of their investment to that reality.
Within 48 hours of IEA report, G7 countries swore off In a bid to halt new funding for foreign coal projects and make “accelerated efforts” to limit global warming to 1.5°C relative to pre-industrial times, for the first time seven mighty nations have come out with a public statement to set a limit of 1.5°C. About to come together.
A day later, President Joe Biden issued a executive Order That, among other things, “encourages” the Treasury Secretary to conduct an assessment of climate-related financial risks to the stability of the federal government and the US financial system. It directed the labor secretary to “consider suspending, modifying or repealing any rule from prior administrations that would have barred investment firms from considering environmental, social and governance factors, including climate-related risks.” in their investment decisions relating to workers’ pensions.”
The fossil-fuel industry is probably seeing what’s written on the wall. “The ultimate death of oil and thermal coal will not come from environmentalists or directly from renewable energy – it will come when the big banks decide to stop funding it, rendering it ‘ineligible’.” wrote The influential petroleum industry website OilPrice.com in response to the report.
carrot? Simply put, the economics, viability and risk profile of renewable energy keep getting better and better. a report good The Carbon Tracker, released last month by UK think tank Carbon Tracker, found that with current technology and in a subset of available locations, we could get at least 6,700 petawatt-hours annually from solar and wind, which could fuel global energy demand. of more than 100 times. (For context, one petawatt-hour is equal to 1 million megawatt-hours.)
as in forbes famous In its coverage of the report: “Renewable energy could kill fossil fuel electricity by 2035.”
Wow. Just wow
Add to all that the seemingly rapid transition to electric vehicles; increasing pressure to electrify buildings, homes and factories; Increasing feasibility of energy-intensive concrete and steel alternatives; and the rise of the circular economy. What a remarkable moment we are in.
Of course, there is no end to the work. increase of deforestation, the health of the oceans, speeding up loss of biodiversityPotentially game changing environment feedback loops – Any of them can be disastrous for human welfare.
All of these have significant business implications. And companies – both customers and suppliers of products and services related to these issues – will find themselves in the crosshairs of investors, activists, regulators and other influencers and changemakers. Expect a new wave of campaigns, demonstrations, boycotts, investor pressure and other means of trading.
A thought experiment: As fossil fuel companies turn tails, who will be the next villain?
For now, let’s stop and appreciate where we are and how far we have come. Progress often feels slow and incremental, mainly because it is. But it is important to recognize key moments and milestones that predict a potentially positive outcome.
Last week was one of those moments. And from here on out, there’s just no turning back.
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