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Investors demand more than carbon measurements to evaluate the net-zero transition

According to a survey, the vast majority of investors require much more than carbon measures to estimate the financial impact of the transition to a low-carbon economy.

The conclusions are based on comments from investment professionals gathered by WTW (previously Willis Towers Watson) at the September 2022 Climate Week NYC event.

Carbon indicators were rejected by 85% of respondents as the appropriate way to analyse risks and possibilities for their investments, according to the global advising, broking, and solutions organisation. The respondents were also asked to identify the most significant impediments to broader adoption of ESG principles in their portfolios. By far the most serious issue was data quality and consistency, with 66% indicating a deficit in this area eroded confidence.

Another 41% stated they need more tools and measures to effectively identify transition risk, as well as clearer evidence that ESG integration will boost long-term performance.

As part of the net zero effort, regulators are increasingly requiring investors to disclose their climate-related financial risks, as well as firms to report their carbon emissions.

Diya Luke, WTW's growth acceleration leader, believes their Climate Quantified data and analytics platform will aid in the shift.

“Investors are hungry for data on how climate risks impact investment outcomes.“ she added.

We now have forward-looking indicators that shed light on all of the financial risks associated with climate change across industries.

"This includes assessing the gap between current market expectations for future cash flows and those under various climate transition scenarios." This is a significant advancement in understanding the impact of the net zero transition on businesses, portfolios, and even countries, and these analytics go beyond current carbon measurements to assist capital align with net zero."

Heather Boushey, a member of President Joe Biden's Council of Economic Advisers, feels that better data for investors is critical to "real reform."

She explained: “The high and rising costs of climate change require a new economic toolbox - and 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.”



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