What can net zero-minded investors still achieve in a ‘hot house’ world?
Are there still credible investor pathways to 1.5C? Investors and experts discuss how to translate net zero transition scenarios into investor strategies
Delayed action on the climate crisis has led the global community to veer dangerously close to exceeding 1.5C of warming this century.
As a result, experts are currently examining a host of different investor-focused climate transition scenarios informed by the science on delayed action.
Consequently, many investors take a different strategic approach to navigating the reality of delayed action on the climate crisis, including on how credible action can be implemented in relation to net zero transition, nature-related risks, and carbon removals.
During the PRI in Person conference, last week in Tokyo, a host of climate experts sat together with a number of major global investors to discuss how to translate the latest net zero transition scenarios into investor strategy.
Alvin Low, director, macro strategy at the $287 billion Singapore sovereign wealth fund Temasek, called allocating fresh funds towards credible net zero strategies is "no longer a choice, but a requirement."
"Allocating capital is our core task, from an investor point of view, how to make money in a low carbon economy," he told hundreds of investors, managers and other industry insiders/
"How as an asset owner do you discipline the use of cash, from an investment point of view; that is important," Low added.
Climate scientist Sven Teske, of the University of Technology in Sydney (UTS), could not agree more. "Delay net zero and the job will be much harder for investors," he warned.
He pointed at the "rapid, steep and unprecedented changes" investors worldwide are facing.
"Let's put colour to that. Every quarter we delay, the likelihood we won’t meet 1.5 degrees only increases."
However, Teske said “there is also hope, look at recent progress in steel and electricity, decarbonising the power sector is vital but possible."
Low argued the "most important use of climate scenarios and analysis is now to push for more engagement."
In addition, Jakob Thomä, project director at Inevitable Policy Response (IPR), pointed out that "61% of investors now believe net zero will be reached but after 2050."
Investors' efforts are simply not enough, he stated. "Economics are now an accelerator, not a brake, now transition will be determined by social, geopolitical, nature and social issues."
Danielle Welsh-Rose, head of sustainability investment specialists and APAC sustainability at abrdn, acknowledged the "challenge" for investors but did stress there is a difference between forecasts and scenarios.
“1.5 degrees Celcius is not realistic anymore, 2.3 [degrees Celcius] is more likely," she shared. "That is our forecast, we are definitely in an energy transition, just not at the pace we need.”
Welsh-Rose added: “When we look at different scenarios, there is very little movement. The impact is dispersion, a very distractional valuation uplift. The result surprised me a little bit to be a honest.”
Meanwhile, Low said there is no other option than to speed up carbon removal efforts, particularly when it comes to biodiversity.
“A lot what we have been talking about is how the carbon market is under pressure. If you continue with lets say deforestation we need carbon negative solutions, nature needs to be an integral part of that discussion," he said.
"Temasek takes a Gen Z project, we focus on tech, nature-based solutions and focus on carbon consistent enablers."
Teske, however, is highly skeptikal. "I am very helpful about nature based systems but we achieved very little in the last 30 years, when it comes to carbon offsetting, right now we can just capture a day or two."
"So right now we can delay global warming by a day, or two, at most," he said to the laughter of the audience.
Jakob Thomä, project director, Inevitable Policy Response (IPR), could not agree more. "Yes, the hot house world has arrived."
So what should investors do next? "Maybe put a gun to the head of portfolio managers, investors should take a view and put their money where their mouth is," Thomä concluded.