An overwhelming majority of survey participants (85%) rejected carbon metrics as the best measure to assess the financial risks of the transition to their investments. Conducted at a session during New York Climate Week last month, the survey focused on progress to measure and manage climate transition risk.
Respondents also ranked the most significant barriers to greater adoption of ESG (environmental, social and governance) principles across their investment portfolios. Topping the list were data quality and consistency (66%), availability of tools and metrics to accurately measure transition risk (41%) and a lack of conviction that ESG integration will improve performance over the long term (41%).
In a push to meet net zero targets, regulators around the world are increasingly requiring investors to disclose their climate-related financial risks and companies to report their carbon emissions.
Diya Luke, Growth Acceleration Leader, WTW, said: “Investors are hungry for data on how climate risks impact investment outcomes. We now have forward-looking metrics that shine light on all the climate-related financial risks across industries. This includes quantifying the difference between current market expectations of future cash flows and those under different climate transition scenarios. This is a step change in understanding the impact of the net zero transition on companies, portfolios and even countries. These analytics move the market beyond current carbon metrics and will help capital align with net zero.”
Climate Quantified™ is WTW’s suite of forward-looking climate data and analytical tools supporting this move. It includes the latest physical risk models and the pioneering Climate Transition Value at Risk methodology, which helps companies, investors and countries identify and manage the risks and opportunities of a climate transition.
Heather Boushey, a member of the White House Council of Economic Advisers, said: “The high and rising costs of climate change require a new economic toolbox. 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.
“We look forward to collaborating with and learning from the private sector as we address the climate crisis together. While the Biden Administration understands the challenges ahead, it also sees this as an opportunity for meaningful reform.”
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