With alarm bells on the climate crisis sounding left and right, it is easy to lose hope. It seems as though we’re sleepwalking into the abyss. But more sustainable investing can offer a path forward.
Yet, we do have one last shot to turn this around. Astronomical levels of capital have been put behind climate-aligned investing. Sustainable bonds are the fastest growing section of the bond market. And with the global value of ESG assets under management is expected to reach $50 trillion by 2025, there is, theoretically, enough money to invest in clean solutions to reverse the climate crisis if their upward trajectory continues apace.
This is our best chance to save ourselves. Therefore, we need to make sure that these socially conscious investments actually yield substantial emissions reductions.
We can start by making greenwashing much harder and less common. “Sustainable” efforts that sound exciting but don’t yield results get a lot of attention. Carbon offsetting by major polluters–the lodestone of countless corporate sustainability marketing efforts–are not getting the job done. ESG commitments that are labeled “climate-friendly” need standards that demonstrate they actually are.
By the same token, the United Nations must hold its financial alliance members accountable, with stricter guardrails. Entrance into this elite club, and the positive publicity that comes with it, is contingent upon the commitment and deadline to meet emissions reduction targets. Glasgow Financial Alliance for Net Zero members are required to publish emissions information within a year of setting their targets. Investors certainly make us all aware of their pledges (through press releases and grand announcements) but it’s the U.N.’s duty to track follow through.
For the values-based bondholders specifically, accomplishments and sustainability efforts must be more transparent. The sustainable part of the financial commitment is voluntary and non-binding. With nothing legally holding parties accountable for their sustainability practices, we need a clearer standard by which lenders can evaluate bondholders.
Hence the case for more of a focus on sustainable investing.
Investors should not only reconsider current investments, but actively pursue new opportunities to fund research and development. Those with financial power would be wise to put their money toward incubators, those really shaking things up. I’d encourage banks and stakeholders to actively seek out companies and parties going beyond zero, creating more energy than they consume.
Ultimately, financial institutions must take aggressive climate action because they have the power and responsibility to do so. Data shows banks are largely responsible for the climate crisis due to their investments in fossil fuels, particularly the small group of 100 companies commonly blamed for 70 percent of global emissions. Well-meaning financial power players will work to atone for this (either to save face or out of genuine concern).
Most major financial institutions have completed only the first step, making the commitments to protect the climate. But commitments are cheap. With the right transparency and data, the next several years will determine which will actually follow through to the next, most important steps. Trends are pointing toward sustainable investing, but we need a clear vision of how this plays out. Most importantly, we must supercharge innovation and work to connect those with financial power to those with brain power.
That takes resources, sure. But it requires transparency and results most of all. It is results that will make ESG investing more than a fad; it is results that will make ESG investing our savior.
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