LONDON, October 6, 2022 — Carbon metrics on their own lack the forward-looking insights needed to assess the financial risks and opportunities of transitioning to a low-carbon economy, according to a survey of leading investment professionals conducted by WTW (NASDAQ: WTW), the global advisory, broking and solutions company.
An overwhelming majority of survey participants (85%) rejected carbon metrics as the best measure to assess the financial risks of the transition to their investments. Conducted at a session during New York Climate Week last month, the survey focused on progress to measure and manage climate transition risk.
Respondents also ranked the most significant barriers to greater adoption of ESG (environmental, social and governance) principles across their investment portfolios. Topping the list were data quality and consistency (66%), availability of tools and metrics to accurately measure transition risk (41%) and a lack of conviction that ESG integration will improve performance over the long term (41%).
In a push to meet net zero targets, regulators around the world are increasingly requiring investors to disclose their climate-related financial risks and companies to report their carbon emissions.
“Investors are hungry for data on how climate risks impact investment outcomes. We now have forward-looking metrics that shine light on all the climate-related financial risks across industries.”
Diya Luke | Growth Acceleration Leader at WTW
Diya Luke, Growth Acceleration Leader, WTW, said: “Investors are hungry for data on how climate risks impact investment outcomes. We now have forward-looking metrics that shine light on all the climate-related financial risks across industries. This includes quantifying the difference between current market expectations of future cash flows and those under different climate transition scenarios. This is a step change in understanding the impact of the net zero transition on companies, portfolios and even countries. These analytics move the market beyond current carbon metrics and will help capital align with net zero.”
Climate Quantified™ is WTW’s suite of forward-looking climate data and analytical tools supporting this move. It includes the latest physical risk models and the pioneering Climate Transition Value at Risk methodology, which helps companies, investors and countries identify and manage the risks and opportunities of a climate transition.
Heather Boushey, a member of the White House Council of Economic Advisers, said: “The high and rising costs of climate change require a new economic toolbox. These tools come from understanding that increased information can help identify and address vulnerabilities in our economy and financial system. They provide an opportunity to guide the market to strong and sustainable economic growth during and after this transition.
“We look forward to collaborating with and learning from the private sector as we address the climate crisis together. While the Biden Administration understands the challenges ahead, it also sees this as an opportunity for meaningful reform.”
The Climate and Resilience Hub (CRH) is the focal point for our climate expertise and capabilities, pooling knowledge from across our people, risk and capital businesses and from our collaborations to deliver climate and resilience solutions in response to a range of regulatory, investor, consumer, employee and operating pressures. Under the Climate Quantified™ brand we deliver analytics, advice and transactions to enable corporate, finance and public sector institutions to embrace the climate decade ahead.
At WTW (NASDAQ: WTW), we provide data-driven, insight-led solutions in the areas of people, risk and capital. Leveraging the global view and local expertise of our colleagues serving 140 countries and markets, we help organisations sharpen their strategy, enhance organisational resilience, motivate their workforce and maximise performance.
Working shoulder to shoulder with our clients, we uncover opportunities for sustainable success—and provide perspective that moves you.
Polling results were taken during a live event where the following questions were asked:
Carbon metrics are able to accurately assess the financial risks and opportunities of a climate transition.
47 respondents answered:
What are the most significant barriers to greater adoption of ESG across your investment portfolio?
41 respondents were allowed to select more than one answer to rank importance:
Which of the different components of ESG (E, S, or G) do you consider to be most challenging when it comes to assessing and incorporating it into investment analysis?
41 respondents were allowed to select more than one answer to rank importance:
