Global Climate Investing 2024: Realism in the midst of transition

The Asia-Pacific region (APAC) is leading the way, while interest in North America is lagging behind. The proportion of investors for whom climate change is important or a material aspect of their investment policy was 79 %, surpassing Europe for the first time (76 %). However, enthusiasm continues to wane in North America due to political disputes over the perceived costs of integrating environmental, social and governance (ESG) factors into investments, with only 35 % of respondents prioritizing climate investing. This means that the global average has fallen from 71 % in 2023 to 62 %. However, this still signals that a majority of investors see climate investing as a priority.

Lucian Peppelenbos, Climate and Biodiversity Strategist at Robeco explains: "The results of the survey make it clear that many investors are taking a focused and careful approach to decarbonizing their investment portfolios and moving towards a low-carbon economy of the future. As they get to grips with the hard work involved in the climate transition, there is less naivety and more careful thought and scrutiny around what is required to incorporate sustainability into the many aspects of managing investment portfolios." 

Compared to other institutional investors and large investors, insurance companies stand out for their commitment to climate neutrality, perhaps due to their exposure to climate change on both sides of their balance sheet. Some 39 % of insurers have already made public commitments, with a further 20 % in the process of doing so. Regionally, North American investors tend to shy away from commitments. Almost half (46 %) have ruled out making a climate neutrality pledge, up from 26 % last year.

Disorderly transition

More than three quarters of investors expect the transition to be somewhat disorderly and that too little will be done collectively. Only 15 % expect an orderly transition, with governments and markets working together to reduce emissions, and 8 % expect a "Greenhouse Earth" where very little is done to prevent global warming. In this sense, fewer investors believe that the Paris Agreement goal of limiting warming to 2 degrees can be achieved. Only 30 % think this target is achievable, down from 38 % in 2023, while 41 % think it is not achievable, down from 30 % last time.

Allocation in the sense of transition

Investors are currently investing more funds in general climate strategies than those specifically focused on companies in transition. Only 37 % invest in strategies targeting companies with credible transition plans, although a majority (63 %) plan to do so in the coming one to two years. The transition theme has an impact on preferred investment styles. Some 45 %s use active equity strategies that specifically target allocations to transition-oriented companies, while 43 %s invest in green bonds or sustainability-focused bonds. This approach is again more popular in Europe and Asia-Pacific.

Lucian Peppelenbos: "The transition of companies and other stakeholders from brown to green in the process of decarbonization cannot happen without the active participation of investors, who reward those companies that are making the change and withdraw support from those that are unwilling or hesitant. An interesting aspect of this year's results is the fact that investors in Asia Pacific are moving forward on sustainability and are more supportive of climate change."

Source: www.robeco.com