Investors increasingly unsure what is required to meet Paris Agreement targets.
A lack of action by policymakers has caused investor confidence in achieving Paris Agreement goals to wane, according to data from international asset manager Robeco’s 2023 Climate Survey.
The survey covers 300 of the world’s largest institutional and wholesale investors in Europe, North America, Asia-Pacific (APAC) and South Africa, representing a total of around US$27.4 trillion in AuM. It revealed that fewer investors think they know what actions are needed to meet the Paris Agreement’s targets, and the number who feel the investment industry has the tools and products needed to meet those targets has also declined.
“Trust in policymakers seems to be slightly eroding,” Lucian Peppelenbos, Climate and Biodiversity Strategist at Robeco, said in a webinar presenting the key findings of the firm’s latest survey.
The survey also flagged that each of the EU, US and APAC regions have different primary concerns on ESG. The majority of US investors were found to be concerned about anti-ESG policies and how that limits their operations in certain jurisdictions.
European investors were primarily concerned about their ability to take sufficient and swift action on ESG to comply with legal requirements. APAC investors were found to be almost equally concerned about taking action to comply with legal requirements over ESG and the impact of anti-ESG policy introductions.
To keep global warming to no more than 1.5°C – as called for in the Paris Agreement – emissions need to be reduced by 45% by 2030 and reach net zero by 2050.
Robeco’s data showed that 38% of investors are confident that the investment industry still has the product and tools to meet Paris Agreement targets, but that number has fallen from 40% last year. Additionally, the percentage of investors that disagree with the statement rose from 26% to 28%.
The percentage of investors that don’t agree they “know what they need to do” to help meet the Paris Agreement targets has also seen risen from 35% last year to 38% in 2023. Just 35% of investors say they are confident in what is needed to meet these targets.
“Where most seem to agree is that the recent [COP27] climate summit last year in Egypt really didn’t help the world very much,” Peppelenbos said. Only 17% of the investors surveyed said that the actions and commitments agreed by governments at COP27 boosted the likelihood of the Paris Agreement targets being met.
This is in contrast to the results following Glasgow’s COP26 in 2021, with 30% of investors agreeing that it boosted the chances of meeting the targets and more agreeing than disagreeing (29%) with the statement.
The survey found that slightly more investors have made, or are in the process of making, a public commitment to net zero by 2050 compared to last year. However, due to macroeconomic headwinds the number of investors making climate change a significant part of, or is central to, their investment policies has slightly dip from 75% last year to 71% in 2023.
There are notable regional differences between investors’ central concerns surrounding ESG. In North America, 61% of investors are concerned about anti-ESG policies and how that limits their operations in certain jurisdictions, with the report describing ESG investing as being at risk of “becoming a political football”.
Additionally, more than half (54%) of US investors state that they see legal risks related to implementing ESG disclosures as an important concern, with them expecting more pressure and/or legal action against ESG investing in their domestic market in the future.
APAC investors also flagged concerns around anti-ESG policies, with 60% “concerned that investment policies to avoid investing in fossil fuels will make it harder to operate in certain jurisdictions or locations, which are taking an anti-ESG approach”. Such concerns were much lower for European investors at 48%.
The report found that a majority of European (63%) and APAC (57%) investors are more concerned about political pressure and/or legal actions if they do not take positive action on climate change, compared to only 40% of North American investors.
European investors also disagreed with their US and APAC counterparts on whether policy makers and politicians are taking sufficient action to shift economies from their reliance on fossil fuels to a sustainable model based on renewables, with 42% disagreeing with the statement, compared to just 27% in North America and 28% in APAC.