The Right Path

The Right Path

The IPCC’s report “Climate Change 2021: the Physical Science Basis” confirms what most of us already believe - that human activity is contributing to the warming of the planet in potentially irreversible ways. The severity of recent weather-related events, from heatwaves to flooding, is alarming.

 

COP26 in Glasgow in November presents an opportunity to harden commitments to tackling the climate crisis. Policy is turning into action. The UK now has a 78% Co2 reduction enshrined in law and Europe’s “Fit for 55” package of proposals further supports efforts to turn policy into legislation and regulation to drive decarbonisation across a broad range of sectors.

 

The report will also reinforce and accelerate the trend towards responsible investment solutions and with that, focus on ESG analysis and its implications will intensify. The rapid growth in issuance of labelled bonds whether green, transition or sustainability-linked requires real scrutiny. So too do the funds that label themselves as such.

 

Transparency and the consistency of data both within and across sectors is improving all the time, but determining which companies are best placed to prosper in the transition requires more than a data dump. Indeed, as the IPCC report highlights, it is not just decarbonisation but also adaptation that is necessary to improve readiness for a changing climate. Covid has highlighted, for example, supply chain vulnerabilities. Climate change has the potential to be equally disruptive. To that end all three elements of the ESG framework are relevant in assessing corporate resilience.

 

The proliferation of funds with an ESG tilt has been a good thing for the environmentally conscious investor, but the report serves as a reminder that too many are simply “talking the talk” on environment. At Aegon Asset Management we look at quantitative and qualitative metrics, engage with companies we invest in, and monitor their commitment to environmental best practice.

Rory Sandilands

Investment Manager, Fixed Income

Rory Sandilands is an investment manager within the Fixed Income team.

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