The vast majority of investors need much more than just carbon metrics to assess the financial impact of the move towards a low-carbon economy, according to a survey.
The findings come from investment professionals’ responses collected by WTW (formerly Willis Towers Watson) at the September 2022 Climate Week NYC event.
The global advisory, broking and solutions firm found 85% of respondents rejected carbon metrics as the best measure to assess risks and opportunities for their investments.
Those quizzed also ranked the most significant barriers to greater adoption of ESG principles within their portfolios.
The biggest problem by some distance was data quality and consistency, with 66% saying a lack in this area undermined confidence.
Another 41% said they need greater availability of tools and metrics to accurately measure transition risk, and also stronger evidence that ESG integration will improve performance over the long term.
As part of the push towards net zero, regulators increasingly require investors to disclose their climate-related financial risks, and also companies to report their carbon emissions.
WTW growth acceleration leader Diya Luke says their Climate Quantified data and analytics product will help with the transition.
She added: “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, and these analytics move the market beyond current carbon metrics and will help capital align with net zero.”
American economist Heather Boushey, a member of President Joe Biden’s Council of Economic Advisers, believes the provision of better data for investors is key to “meaningful 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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