Normative’s whitepaper uncovers a 10% ESG premium, signifying increased investor awareness of climate risks
The financial services sector is still at a crossroads in its efforts to achieve net-zero emissions, despite a growing inclination for eco-friendly solutions. Not only that, but over 40 financial institutions have already submitted their science-based climate targets for 2022, marking a treble increase from the previous year.
According to Normative’s paper, “How the Financial Services Industry can Lead the Net-Zero Transition,” financial players now have a decision to make on how they proceed with their sustainability commitments: whether to be proactive or reactive.
According to carbon accounting engine Normative’s most recent whitepaper, investors are now willing to pay a 10% premium for companies with a positive ESG record, even though their expectations are still centered around wealth creation. This is due to investors’ rising knowledge of climate risk issues.
The financial services sector is still at a crossroads in its efforts to achieve net-zero emissions, despite a growing inclination for eco-friendly solutions. Not only that, but over 40 financial institutions have already submitted their science-based climate targets for 2022, marking a treble increase from the previous year.
According to Normative’s paper, “How the Financial Services Industry can Lead the Net-Zero Transition,” financial players now have a decision to make on how they proceed with their sustainability commitments: whether to be proactive or reactive.
Their choice of direction will have a major effect on their capacity to fulfill current obligations and may be a major factor in deciding how well the global shift to net-zero emissions proceeds.
Elena Pérez Celis, head of policy and public affairs at Bankers for Net Zero, said: “Large companies and banks have so much power to help businesses across the UK transition towards the low carbon economy.”
In short, Normative’s analysis says that the “most viable” way to guarantee a sustainable transition is to pursue net zero proactively, since this might foster higher levels of growth and long-term resilience for financial institutions.
The whitepaper also contains a crucial caution: significant investments in organizations and technology that are crucial for the transition will be postponed or possibly never made if financial institutions and other industry players behave more reactively.
The regulators’ role
Regulators have created a number of rules and regulations for the financial sector in an effort to accelerate the global net-zero transition. These not only encourage the industry to adopt more environmentally friendly methods, but they also educate and shield stakeholders, customers, and investors from the dangers associated with climate change.
Extreme weather-related hazards, transitional risks resulting from changes in technology and legislation, and shifts in investor and consumer expectations are all examples of this. As a result, it is now essential to provide thorough and open climate disclosures in order to manage risk and navigate the regulatory environment.
Normative’s CEO and co-founder, Kristian Rönn, outlined the potential consequences of not prioritizing sustainability practices: “The World Meteorological Organization estimates that there is a 66% chance of exceeding the 1.5-degree Celsius threshold for average global temperature increases. Going over this line would put the climate at risk of irreversible changes.”
Financial institutions may play a significant role in addressing this issue by investing in new opportunities during the shift to a net-zero economy, planning to support ever-more-specific regulatory requirements, and taking action to mitigate climate-related risks.
“The industry has a great opportunity to take the lead and seize the financial benefit of choosing the proactive route.”
