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Earth Day: Investors must ask themselves some tough questions

21 April 2021

Investors can play a pivotal role in supporting positive changes but they have to ask where ESG factors in their investment decisions, says Gerrit Ledderhof, Responsible Investment manager at Aegon Asset Management

The decade to 2030 is expected to play an outsized role in determining the future of our climate. Keeping the world on track to achieve the goals adopted some five years ago under the Paris Agreement will require a massive change in the way we think about energy, from how it is sourced to how it is used.

Fortunately, investors are able to play a pivotal role in proactively and positively supporting this shift as the energy transition continues to accelerate through 2021 and beyond. With the world slowly coming back to life following the rollout of Covid-19 vaccination programmes, it is more important than ever to recognise this opportunity to re-direct capital in support of the net-zero transition and global carbon reduction objectives.

Measures targeted at controlling the spread of the coronavirus early in 2020 caused an estimated 7% drop in global greenhouse gas emissions. But despite paying lip service to ‘building back better’, policy and incentives are falling back into old patterns. For instance, analysis from the Rhodium Group illustrates that despite over USD 5 billion in US stimulus spending, a mere 1.3% was aligned with green objectives. Though with the world’s attention looking to the delayed COP26 climate conference in Glasgow later this year, this could all change.

For investors, this shift toward a net-zero carbon economy highlights the need to insulate their portfolios from risk and align with the energy transition.

However, the climate crisis also presents opportunities to pursue alpha by capturing growth trends.

To position themselves to capitalise on these changes, investors will increasingly be forced to ask themselves some tough questions about the role of ESG factors in their investment decisions; whether or not the market is sufficiently transparent in the pricing of climate risk; and whether or not they are following a structured process to uncover climate-related risk and growth opportunities.”

Professional Paraplanner