As we near Earth Day this year, it’s worth taking note of exactly how far sustainability investing has come, and the tailwinds that are going to continue to buoy it moving forward. Gwen Le Berre, director of responsible investing at Parametric, an advisor for institutional investors, discusses the confluence of regulations, investor activism, and corporate involvement that will lead to even greater commitments and sustainability growth looking ahead in a recent blog post.
The series of reports released by the Intergovernmental Panel on Climate Change (IPCC) that began last year have highlighted exactly how dire our circumstances are and the repercussions of not curtailing global warming They have also set a goalpost of 2025 for emissions caps to keep as closely aligned as possible with a 1.5° C temperature increase over this century. Governments and investors are increasingly paying attention and are enacting regulations and allocating money in ways that support the net-zero transition.
From a policy perspective in the U.S., President Biden was quick to rejoin the Paris Agreements once he was in office and has since set several new pieces of legislation that focus on emissions reductions. These include setting 2030 as the goal to cut emissions in half from 2005 levels, requiring that half of all new vehicles manufactured after 2030 be zero-emissions, moving to all new vehicles being zero-emissions by 2035.
Other regulatory bodies have taken up the torch as well; the Department of Labor is considering reforms that would address protecting pensions and retirement savings from climate change risks, and the SEC is tackling regulations that would require emissions disclosures from all publicly listed companies at various integrals, Le Berre explains.
“The SEC has also proposed to require companies to disclose how their boards and management oversee climate-related risks and opportunities, as well as details of climate-related transition plans and internal carbon pricing information,” Le Berre writes. “The SEC is looking for public comments on their proposal, but we don’t expect material changes to this draft 505-page rule.”
Investors and Corporations Take Action
Investors are on the frontlines too, coming together to create the Climate Action 100+ in 2017, a collective of over 600 global investors spanning 33 countries and with $65 trillion in AUM. This group focuses on engagement with some of the top publicly traded emissions-producers worldwide, garnering commitments from their boards and leadership to reduce emissions, build frameworks that focus on better climate governance, and be more transparent.
From a corporate perspective, companies are increasingly committing to emissions reductions and more climate-centric operations. The United Nations Framework Convention on Climate Change issued a Race to Zero challenge with aims to increase emissions reductions on a faster timeline; so far, companies, financial consultants, educational institutions, hospitals, cities, countries, and asset managers have all made actionable pledges, with nearly 70% of the world’s economic activity in 2021 represented through commitments, Le Berre explains.
The creation of the world’s first net-zero corporate standard by the Science Based Targets initiative in 2021 is the very first scientific certification of emissions targets and aligns with the Paris Agreement goals. Thus far, over 1,300 companies have agreed to send their net-zero targets in for approval, and Le Berre anticipates that it will become the standard for businesses going forward.
“Climate change won’t be solved without a massive collective action, and it seems that we’re finally starting to get there. As more global climate initiatives launch, we have reasons to be optimistic that progress will only accelerate in the coming years,” Le Berre writes.
For investors looking for exposure to companies that are working to reduce emissions, IndexIQ offers two different solutions, one within transportation and one focused more within shipping. The IQ Cleaner Transport ETF (CLNR) seeks to give investors exposure to global companies focused on clean energy resources, transportation equipment and services, technology that makes transportation more efficient, and infrastructure components, while the IQ Clean Oceans ETF (OCEN) seeks to offer exposure to companies involved in pollution reduction, carbon efficiency, clean energy, sustainable oceans, or cleaner shipping.
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