The world is running out of time to reach net-zero. At their current rate of emissions, the world’s publicly listed companies are on track to burn through their remaining share of the global emissions budget for keeping temperature rise to 1.5°C by 2026.
Though the target date for net-zero remains nearly 30 years away, the reallocation of capital toward an economy that removes as much carbon and other greenhouse gas from the atmosphere as it puts in is already underway, a report by MSCI ESG Research finds.
Climate change is the single greatest challenge humankind has faced and its consequences are already all too apparent. Flooding, fires and drought are harbingers of the dislocation to come if the planet doesn’t slash emissions of greenhouse gases to reduce warming.
Investors can play a critical role in the transition to net-zero by allocating capital to companies with achievable net-zero targets, by excluding those with poor records on emissions and by using engagement to influence companies’ long-term strategies.
Net-zero does not mean zeroing out emissions of carbon and other greenhouse gases. Some sectors of the economy such as transportation or cement production may continue to rely on fossil fuels even if much of the rest of the economy has phased them out.
Though no one can know with certainty, a variety of estimates suggest some of the value at stake. But net-zero is becoming increasingly important for investors, both in terms of minimizing potential risk and also maximizing potential opportunities.
Climate change and the loss in biodiversity are interrelated. Both threaten nature, human health and well-being, and result from human activity. Both present risks for the financial sector. Action to prevent biodiversity loss also may help to achieve global climate goals, and vice versa.