From shareholders to governments to civil society, stakeholders will expect to see more details in 2022 on how firms plan to meet their net-zero commitments. This means going beyond target setting. Ambitious transition plans, for both financial institutions and industrial companies, will become a core requirement for climate credibility and will be crucial in fighting off accusations of greenwashing. Such pressure could result in increasing numbers of shareholder resolutions requesting transition plans and voting on their credibility.
As the “decisive decade” continues, financial institutions will need to proactively finance real-world transformation, rather than achieving portfolio alignment on paper only. We expect to see a record-breaking year for the launch of new green investment products, such as green bonds, sustainability-linked loans, and green ETFs, as well as increasing corporate engagement.
Demonstrating action, though, should not come at the expense of impact. Actions to align portfolios will not always lead to emissions reductions in the real economy; divesting from a steelmaker may not cause it to build less polluting steel plants. Supporting adaptation and sustainable development in emerging and developing markets will be another key piece of the decarbonization puzzle.
Firms will need to adopt strategies that have the greatest probability of high impact, doing the things that matter most first and avoiding greenwashing. To aid this, the Center will soon launch a set of impact-oriented climate alignment principles to guide financial institutions as they implement their commitments.
Investors need asset-level, quantitative data and metrics that can support company or sectoral transition plans and that can be integrated into existing investment models. Much of the data financial institutions use today focuses on what happened in the past (climate impacts, company performance or consumer demand), but these are no longer a good indicator of what will happen in an unprecedented environment—or what needs to happen to avoid one.
Forward-looking metrics can help assess investment risks and opportunities through the net-zero transition, such as assessing how companies or individual assets are likely to fare in the transition. The Center’s Climate AIR Toolbox explains which data and metrics tools are forward-looking. For example, investors in US regulated utilities can use forward-looking emissions scenarios in RMI’s Utility Transition Hub to make investment decisions today. Similar metrics must be made available across other geographies and sectors too. Identified laggards should be targeted and prioritized by committed financial institutions, which can offer both incentives and penalties to encourage action.
