Capital markets must lead net-zero economy revolution
Market participation essential to drive systematic transformation, avert climate catastrophe
21 Apr 2021 | The Asset

Addressing climate change will require the largest reconstruction of the global economy since the Industrial Revolution, according to a recently published report.

The report, by index and data provider MSCI, highlights how capital markets participants must be a powerful and positive force to urgently drive the systemic transformation needed to avert climate catastrophe. This call to action identifies specific steps that companies as well as owners and managers of capital must take to drive the achievement of a net-zero greenhouse gas (GHG) emissions economy by 2050.

Analysis by MSCI of its All-Country World Investable Markets Index - a measure of approximately 9,000 publicly listed companies across 50 developed and emerging markets with a market value of over US$70 trillion – revealed those companies annually emit an estimated 11.2 gigatons of carbon-dioxide equivalent (CO2e). The model indicates that, without any change to current practices, the annual emissions of these companies could reach 16.8 gigatons of CO2e by 2050, leading to a planet that is 3.5˚C warmer by the end of the century. This trajectory demonstrates the tremendous challenge in reaching net-zero and the urgency to act now.

Therefore, the company calls upon: 

  • Asset owners, including sovereign wealth funds, pension funds, endowments, insurance companies and individuals, to reallocate capital to less emission intensive investments and to green solutions aligned with accepted warming scenarios; target a year-on-year decarbonization of portfolios that allows for a reduction in the world’s total emissions by 10% a year; and transition to a policy benchmark to help portfolios move toward net-zero
  • Asset managers to use their voting rights and direct engagement with companies to urge them to align with net-zero targets; support owners of capital by building expertise to fund clean energy; and develop risk management and reporting expertise in accordance with the guidelines of the Task Force on Climate-related Financial Disclosures
  • Banks to support businesses with capital to invent and scale clean energy; and drive developments in corporate lending and corporate debt and equity issuance linking terms of capital to net-zero objectives
  • Companies to set emissions targets to reach net-zero no later than 2050; articulate credible and specific strategies to achieve these reductions; and incorporate best practices when reporting and disclosing data and initiatives undertaken.

Henry Fernandez, MSCI’s chairman and chief executive officer, says: “Capital markets are an essential and critical force to drive the transition to net-zero with concerted action from all participants, ranging from a reallocation of capital by asset owners, to effective channelling of funds by asset managers and banks to greener investments and innovation, alongside the commitment of companies."