David Carlin, Head of Climate Risk at the United Nations Environment Program Finance Initiative (UNEP FI), has stressed the need for investors to adopt a more expansive approach in order to meet net-zero goals. Carlin pointed out that most fossil fuel financing occurs in developing and emerging economies, while the least transition finance is directed there. He cautioned that relying solely on progress in the US and Europe may not be sufficient to achieve the net-zero objective by 2050.
“We risk getting to a point where even successful progress in the US and Europe is not going to necessarily bring us to that net zero objective by 2050,” he said.
His comments come as MSCI’s new Net-Zero Tracker published today has found that public companies are projected to deplete their share of the global emissions budget for limiting temperature rise to 1.5°C by October 2026, two months sooner than previously estimated.
Carlin emphasized the necessity for innovative thinking among investors to address the lack of transition finance in emerging and developing countries.
“We [investors] need to be much more expansive in how we think and there needs to be much more understanding of the different ways to assess credit quality, to assess potential valuations and to recognise the models that we’ve followed in Europe and North America may not be the ones that are most fit for purpose in other parts of the world,” he said.
We see that with the work from the International Energy Agency and others about the sky-high capital costs that renewable projects have in many parts of the world
David Carlin, Head of Climate Risk UNEP FI
Carlin said while money was on the table, with transition finance reaching US$1 trillion this year, it would need to be three to six times that by 2030, “a scale that is staggeringly quick and in a world of higher interest rates,” he said.
However, he acknowledged potential obstacles, including political challenges, such as rising interest rates, high fossil fuel prices benefiting producers, and geopolitical tensions affecting policy coordination. Carlin stressed the importance of the private sector playing an active role in advocating for capital allocation and acceleration.
There’s a real need to see the private sector take an active role as advocates of capital allocation and acceleration
David Carlin, Head of Climate Risk UNEP FI
Valeria Piani, Head of Stewardship at Phoenix Group, emphasized the importance of engaging with policymakers and regulators in addressing climate change. She highlighted the role of regulators in creating incentives for climate action and the significance of asset owners having a voice in the public policy domain. Piani also mentioned collaborative working groups like the Net Zero Asset Owner Alliance Initiative and the Institutional Investor Group on Climate Change for engagement on climate issues.
In terms of engagement with companies on climate change, Piani explained Phoenix Group’s approach, which involves identifying portfolio companies responsible for a significant portion of financed emissions for direct engagement. Out of nearly 500 investee companies, around 25 are responsible for 40% of Phoenix Group’s financed emissions.
We estimate around 25 are responsible for 40% of our financed emissions out of our almost 500 [investee] companies
Valeria Piani, Head of Stewardship at Phoenix Group
Source: ESG Investor’s Stewardship Summit, May 10, 2023
