The past year was a “watershed” for ESG allocation with unprecedented global political and practical low-carbon initiatives to prepare for climate change, including the launch of dedicated indices to channel an estimated $725 billion in assets, according to JP Morgan research. Europe continues with most aggressive policies to reach the 2030 Paris targets of a 40% cut in greenhouse gas emissions, and 40% energy share from renewables. It has pricing, trading and tax schemes that have also spread to the Americas and China, and a simple equity selection framework favors the mainland over slowed company adaptation in Brazil and the Persian Gulf. The International Energy Agency notes that 80% of output still comes from fossil fuels, despite the extreme weather evidence of natural disasters paring economic growth. Green bond issuance is already $60 billion this year on track to another record, with corporates over half the total. Commodities are in the direct global warming “crosshairs,” and oil and gas and mining firms are under management and balance sheet scrutiny to transition after high-profile catastrophes and losses, even though market performance under specific screens roughly equals conventional analysis. European fund operators and central banks have led on incorporating environmental disclosure and reporting, and international organizations including the UN, IMF and World Bank set ambitious goals and detailed work plans. The Bank aims for one-third its portfolio in green projects into the next decade, and regional counterparts have joined to offer financing and technical advice to public and private sector borrowers.
Climate investors must weigh measurable impacts and commercial returns both at company and macro-levels, as lack of action can harm earnings and broader economic policy and performance. Weather swings are also correlated with conflict and mass migration, with studies showing that the Syrian civil war and refugee exodus was preceded by water scarcity that affects the volatile Middle East more generally. No blanket preference between emerging and developed markets is obvious, and in the former China is better placed than vulnerable Bangladesh and Nigeria. Index sponsors have rolled out green versions gradually gaining acceptance, with carbon intensity a main country distinction. Surveys reveal that Europe’s portion of global portfolios has fallen below half as other regions catch up, although retail core interest remains around 5% of outstanding exposure. In the US despite the Trump administration view that the issue is a “hoax,” states and municipalities have adopted their own practices and business schemes, with California and New York City in the vanguard. The green bond total should reach $600 billion by year-end, with the high-yield portion just 5%. North Asia is the top geography outside Europe with over 20% of activity, and Chinese bank and government issues are overwhelmingly in local currency. The dedicated worldwide investor base exceeds $100 billion, and loans are also evolving as an asset class following new principles and regulations. The field is predominantly investment-grade rated with limited secondary trading. Housing could be the next niche play as securitized products bundling mortgages for wind and solar-supplied property come to market. As the big US backers are reformed under a renewed post-crisis push this structure could appeal in the future competitive climate, the report suggests.