Unleashing the power of numbers on climate fight

The stakes are high post COP26 - literally life and death, as climate change has become one of the greatest threats to human health.

Fortunately, some positive developments were yielded during the important climate event held in Glasgow, Scotland. A wide range of issues central to the heart of climate change was addressed by the 200 signatory countries of the United Nations Framework Convention on Climate Change.

A great deal of commitments, such as new adoption targets for electric vehicles, plans to phase out coal power and fresh environmental, social and governance (ESG) initiatives, were made as part of the efforts to cut emissions by 2030 and possibly reach net zero by 2050.

Adaptation, loss and damage, nature, cities, regions and built environment, were also among the highly varied but connected topics discussed by the 25,000 delegates at the two-week conference concluded on November 12.

These topics will have far-reaching implications. They will help to set the direction on climate policies, potentially reshaping the investment landscape in the years to come as more institutional investors are incorporating ESG consideration in their asset allocation.

Investors are encouraged to better understand the intricacies of these environmental topics from a statistical perspective, viewing the cross-cutting issues with a by-the-numbers breakdown.

Refinitiv’s data-driven approach to finance, energy, ‘green crime’ and infrastructure, which are some of the major topics at COP26, is highlighted here.

FINANCE

Investors are much less likely to disregard ESG risks or maintain where they are outside their fiduciary duties after Covid-19. As shown by Refinitiv data, 43% of compliance and risk professionals indicate that ESG factors have become more important as a result of the pandemic.

ESG investing has skyrocketed and ESG funds have been outperforming non-ESG funds in seven of the last 10 years. Total assets under management in global ESG-related mutual funds and exchange-traded funds (ETFs) reached a record $4.7 trillion in the second quarter of 2021.

‘Green’ bonds that are financing products specifically designed to support climate or environment related projects raised $365 billion in the first three quarters of 2021.

Amid the rising interest, more investors are convinced that accurate data is the bedrock of ESG investing. As COP26 dives into the topic of sustainable investing, data accuracy, consistent disclosures and standardisation around ESG reporting will be essential for investors.

If investors are to assess the climate risk or opportunity of a particular asset, they need climate-related data that is complete and presented in a way that is comparable. In other words, they need a universe of data that is comprehensive across all industries and countries, whether it is data for investors, or for companies listed in capital markets.

ENERGY

Much like the trend in ESG-related investment vehicles, renewable energy sources have become a topic of great investor interest and steadily increasing scrutiny.

Statistics show a trend toward reduced global reliance on fossil fuels, but persistent use of oil and gas raises questions about whether broad-based climate goals will be attainable.

The 12-month forward price-to-earnings ratio (P/E ratio) for global renewable energy companies is currently 32.4x current earnings. That compares with a forward P/E ratio of 11.9x for the traditional global oil and gas index.

While intense focus is on renewable sources, research shows that industries such as maritime shipping are still relying on fossil fuels, aggravating the cost of CO2 emission. According to the Refinitiv Carbon Market Survey, higher price expectations in key markets is making the cost of CO2 a crucial factor in investment decisions.

‘GREEN CRIME’

‘Green crime’ refers to the global network of poachers, illegal loggers and waste traffickers, who have created an extremely lucrative industry exploiting natural resources.

The criminal exploitation of natural resources around the globe is a startling $256 billion annually. The UN and INTERPOL cite wildlife crime as one of the world’s top five most lucrative illicit activities.

Here again, data is central to addressing the challenge. The criminal networks behind these environmental crimes often use legal business structures and complex business ownership models to obscure their illicit activity.

Their ability to do this is often made easier by lax approaches to due diligence. Refinitiv research shows that 43% of third parties are not subject to due diligence checks and 60% of respondents are not fully monitoring third parties for ongoing risks.

COP26 delegates who are serious about finding a solution will be eager to use vast data sets and powerful analytics to address green crime.

INFRASTRUCTURE

The trend toward sustainable infrastructure investment has the power to create an entirely new asset class and address many of the root causes of climate change along the way.

Major world economies and some of the largest institutional investors are reimagining utilities, transportation networks and city centers as efficient, sustainable resources. This could be the precipice of a sustainability revolution.

According to projects tracked by Refinitiv, in 2020 alone, $272 billion was invested in sustainable infrastructure projects, nearly double the levels seen a decade ago. The largest growth has come from wind projects, where $55.3 billion was invested last year.

Globally, roughly 35% of all new infrastructure projects announced last year were sustainable, up from just 10% a decade ago.

Please download the report to glean more statistical insights on the environmental themes discussed at COP26.