In fact, net zero commitments represent over 68% of global GDP and 61% of CO2 emissions, including over 65 members of the UN-convened Net-Zero Asset Owner Alliance , and the 450 financial firms representing over $130 trillion in assets in Mark Carney’s Glasgow Financial Alliance for Net Zero.
Targets should not be met by tilting toward asset light sectors, moving capital out of emerging regions, selling assets to less responsible owners, or outsourcing.
Fortunately, investment in companies developing technology to try to combat the climate crisis increased by 210% to $87.5 billion for the year ending June 30, 2021 from $28.4 billion for the twelve months prior, and 14% of venture capital dollars now go to climate tech, according to PwC’s new State of Climate Tech 2021 report.
Nuanced climate commitments are critical: trying to meet simple net zero commitments would give institutional investors the incentive to deny emerging markets of the $2.5 trillion per year that they need to meet Sustainable Development Goals and comply with the Paris Agreement.
To illustrate, since 2010, the private equity industry has invested at least $1.1 trillion into the energy sector—double the value of Exxon, Chevron, and Royal Dutch Shell combined—purchasing offshore drilling in the Gulf of Mexico, fracking operations, and coal plants from divesting publicly traded companies.
According to PWC research, solar power, wind power, food waste technology, green hydrogen production, and alternative foods/low greenhouse gas proteins represent over 80% of emissions reduction by 2050, but received just 25% of climate tech investment between 2013 and 2021.
Over the past 18 months, SPACs have been tested as a new tool and have raised a third of all climate tech funding during the year ended June 30, 2021.
Most of the SPAC climate tech deals are in low-carbon transportation, such as electric bus manufacturer Proterra.
Caroline Flammer, Bryan Hong, and Dylan Minor’s recent study found that the adoption of environmental, social, governance criteria in executive compensation is associated with an increase in long-term orientation, an increase in firm value, an increase in social and environmental initiatives, reduction in emissions, and an increase in green innovations.
As a case in point, substantial capital investments are necessary for most buildings in New York City over 25,000 square feet to comply to Local Law 97’s mandate to reduce emissions by 40% by 2030 and by 80% by 2040.
It also involves identifying where managers have exposure to emissions mitigation or emissions removal or to companies with climate pledges or where managers strategically engage on climate, size based on climate, or exclude fossil fuels from their portfolios.