Climate issues are on everyone’s lips today.
After a long period of analysis, often characterised by a “wait-and-see” approach, economic actors, and even more so, investors, have stepped up to take action on climate change. Today it is globally accepted that the need to take action on climate change is urgent and we have only ten years, at most, before reaching the point of no return. This has precipitated a rapid acceleration in the adoption of climate-focused investment solutions throughout the world, and particularly so in Europe.
In an effort to support the objective of the 2015 Paris Climate Agreement (COP21), the European Commission provided its 2018 Action Plan framework for fostering sustainable finance. This included, amongst other major initiatives, amendments to current regulations of indices as well as the creation of a category of climate benchmarks: the Climate Transition Benchmark (CTB) and the Paris-Aligned Benchmark (PAB).
With the introduction of these new climate index labels in the EU regulation, investors have a new way to make a difference. The new-labelled indices provide a more comprehensive approach to investing for positive impact. In particular, they are becoming very successful in the ETF space, and are the subject of strong enthusiasm on the part of investors who now have a very wide range of products on extremely varied exposures.
Signatory countries of the Paris Agreement at COP 21 in 2015 committed to a common goal of limiting global warming to within 2°C of pre-industrial levels while striving to keep it to 1.5°C. The 2015 conference highlighted the urgent need for joint and international climate action to achieve a rapid reduction in emissions in order to reach emission neutrality by 2050. It also raised public awareness of the need for rapid and long-term climate and environmental action to meet the EU’s international commitments to tackling climate change and to reach a more sustainable economy. A massive mobilisation of all sectors and economic actors is now required, with incentives to redirect investments and capital flows, whether public or private, to less carbon-intensive business activities.
