Our Net-zero Tracker “COP29” special edition is out, and just like Baku, it is both beautiful and complicated.
Beautiful like the old city as we explore many facets of striking climate progress such as increasing ambition, disclosures and investments in low carbon technologies.
But also complicated like the COP29 negotiations because we lay bare the complex linkages between climate investing strategies and real-world decarbonization trends and highlight persistent DM-EM investment flows imbalances. It is also clear that capital and ambition are needed in Baku in quantities that far exceed those pledged to date.
Thanks to
Linda-Eling Lee
for overseeing this work and to
Brian Browdie
, Elchin Mammadov
, Rumi Mahmood
, Abdulla Zaid
, Antonios Panagiotopoulos
, Kenji Watanabe, Feifan Huang
, Mohammad Umar Ashfaq
, Helen Droz
, Tanguy Séné
, Seokhee Moon
, Jamie Saunders
, Mariela Martinez
, and Caitlin Williams
for your help.
The report looks into many dimensions of climate investing, notably:
A heterogenous global energy & emissions outlook.
- Developed Markets are slowing their decarbonization rate, while Emerging Markets are slowing their emissions growth -> still more emissions…
- Listed issuers S1 emissions remain flat vs 2023 (11GT), but this is up 23% since the Paris Agreement.
- For the first time we estimate unlisted emissions, at 7.3GT.
- Governments may tap decarbonization levers by promoting transition plans within the most carbon intensive sectors, but the carbon intensity of local grids is key, itself affected by electrification and power demand, itself affected by the energy crisis since 2022.
- Europe and China lead in low carbon infrastructures deployment, but increased energy demand wiped out efficiency gains; fossil fuels covered most of the extra energy demand.
EM vs DM capital flows show more risks and less returns
- Most climate capital goes to DMs, especially the US market, despite massive needs in EMs.
- We analyse this imbalance in three ways: size of investable markets, climate funds and capital raises.
- Various levers could alter these flows: cost of capital, returns, scalability and of course market governance.
A look at physical intensities
- The carbon efficiency of physical production processes in hard to abate sectors varies significantly, with some companies already outshooting the IEA’s NZ scenario trajectories, while most lag these sector pathways.
- This approach is very different from looking at EVIC-based intensities.
- The MSCI ACWI IMI stands at 2.8°C using a new “unweighted” Implied Temperature Rise (ITR) approach which better represents “real world” emissions.
- 11% of issuers <1.5C
- The 1.5C budget runs out by November 2026
- We also see an unexpected convergence between this work and a major MSCI consensus survey of 350 investment and risk professionals in every region for their views to inform.
Russ B.
asked them what the climate future they expect. Their answers reveal a market united on physical risk but divided on emissions. And in particular, they expect a 2.8°C future as well! Note that this does not mean it is priced in. Read all the findings from our report here: https://www.msci-institute.com/insights/comment/investors-envision-a-2-8oc-future-with-escalating-risks-of-severe-weather/
Targets & disclosures – “US wait-and-see”
- 22% issuers have an SBTi approved NZ target (broadly balanced EMs vs DMs).
- 73% of issuers disclose S1 and S2 emissions globally ex-US vs only 49% of US issuers.
- CO2 tons trade at 4.8$, flat vs 2023).
- CM integrity ratings: only 10% meet AAA criteria but best ratings are increasingly in demand.?
