The changing climate policy and investor landscape

Over the past 15 years, sustainable finance, or ESG investing, has moved from being a niche issue to being central to many global investors’ practices and processes. The report notes the substantial developments in investor engagement and how the financial sector addresses sustainability-related issues. Climate Action 100+, with the ambition to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change, has over 700 investor signatories representing over US$54tn in assets under management.

Climate policy

The report recommends that effective climate policies should have clear commitments to action, short, medium, and long-term targets, and comprehensive and sector-specific policies. The policies must provide the right incentives and encourage a just transition. Clear and transparent data sharing and high-quality reporting are crucial to manage climate risks and opportunities effectively.

Sustainable finance

The report looks at how the sustainable finance landscape has evolved over the years, from being a niche issue to a central focus for global investors. Over 4,500 asset owners and asset managers are signatories to the Principles for Responsible Investment (PRI), while almost half of the global banking industry represents over 300 banks as signatories to the Principles for Responsible Banking.

Key features of effective climate policy

The report identifies eight key features of good climate policy frameworks, namely:

• Clear commitments to action
• Clear short, medium, and long-term targets
• Comprehensive and sector-specific policies
• Provide the right incentives
• Just transition
• Transparency
• Clear transition planning
• Align with science

Investment

The report recommends that investors must manage systemic climate risks in their portfolios, shift capital to value-creating businesses that set to succeed in a net-zero future, and engage and demonstrate progress with companies to drive real progress consistent with a 1.5°C future.

Policy

Effective policy implementation necessitates various policy design and implementation approaches to align capital markets responses and actions. The report advocates for policies aligned with delivering a just transition to a net-zero economy by 2050 or sooner.

Corporate engagement

Engaging companies to drive and demonstrate real progress in line with a 1.5°C future is a critical component of the Investor Agenda. The report notes the need to enhance investor disclosure to help track investor action in line with a 1.5°C pathway.

Investor disclosure

Enhancing investor disclosure is essential to help stakeholders track investor actions in line with a 1.5°C pathway. The report notes that decision-useful climate-related disclosure remains critical to manage climate risks and opportunities effectively. (Pages 20-21)

Conclusion

The report concludes that policymakers must create comprehensive policies and sector-specific policies aligned with the Paris Agreement’s objectives. Investors must manage climate risks in their portfolios and shift capital to value-creating businesses aligned with a net-zero future. Companies must engage with investors to drive progress in line with a 1.5°C pathway. The report also calls for greater transparency and clear transition planning to deliver short and long-term targets aligned with science.