The road to net zero


The Taskforce on Climate-related Financial Disclosures (TCFD) has identified climate risk as a non-diversifiable material risk affecting nearly all industries that financial investors need to understand, assess and disclose on. Moreover, governments and society are increasingly demanding that financial institutions start setting targets of net zero emissions by 2050 as the financial sector has a fundamental role to play in averting a climate crisis and setting the global economy on track for a cleaner and more sustainable future. The UN-backed Net Zero Asset Owner Alliance which represents 33 institutional investors and USD 5.1 trillion in AuM has made a head start by committing to decarbonize investment portfolios in order to meet the goals of the Paris Agreement. However, experts predict that the current action is still well short of what would be needed.

To start the journey towards net zero and understand climate risk exposure, investors could employ forward-looking climate scenarios to investigate climate-related risks while at the same redirecting investments into climate solutions. During this webinar, we will discuss how climate change may affect the business operations of companies and how the transition to a low carbon economy can create both significant downside risks as well as upside opportunities for investors.

A new, dynamic methodological framework for forward-looking climate scenario analysis will be introduced while sector-specific examples of low carbon transition risk will be examined, focusing on how a country’s greenhouse gas reduction target can be quantified and combined with outputs from Integrated Assessment Models to understand the potential downside regulatory risk at company facility level. On the other hand, patent databases can be used to assess which companies are low carbon innovators and therefore well positioned to benefit from the transition to a low carbon economy. Examples of how patent information can be leveraged to identify a company’s potential to generate green revenues will be provided.

We will close by introducing two quantitative metrics that can help us on the journey to net zero: Climate Value-at-Risk and Warming Potential, which can both be leveraged in a target setting context.