While the world has made progress towards net-zero – as evidenced by enhanced national commitments, expanded renewable energy capacity and record high finance targets on climate mitigation and adaptation – some investors have the pessimistic view that global carbon emissions will never stop growing.
Notably, 38% of 485 global investment professionals recently surveyed by MSCI Sustainability Institute think that global carbon emissions will rise indefinitely, while 46% of them believe the global carbon peak will come in 10 years. In other words, the believers and non-believers of carbon peak resembles, in the language of statistics, a bimodal distribution.
Source: How Market Thinks: A Climate Risk Survey, by MSCI Sustainability Institute
Interestingly, investors’ diverging opinions on when global carbon emissions will reach their pinnacle (if at all) are related to their geographies.
Investors from North America and Europe are inclined towards the view of ever-increasing carbon emissions – 17% out of the 38% of the respondents who think carbon emission will rise indefinitely are from North America, and 13% are from Europe. By comparison, investors based in the Asia-Pacific region are more optimistic about the carbon emission peak, with only 7% of the respondents of the no-peak believers hailing from the region.
Source: How Market Thinks: A Climate Risk Survey, by MSCI Sustainability Institute
Corroboratively, 70% of respondents, the survey notes, think the target of net-zero by 2050 is unlikely to be achievable, with non-Asia-Pacific respondents being more pessimistic.
Economic effects
While investors have a bifurcated view on the projected growth trajectory of carbon emissions, their views on the consequences of these rising emissions are quite uniform, with 93% of the respondents agreeing that changes in our physical environment due to a global temperature rise will take a toll on the global economy.
Differences to this view only appear with regard to when the impacts will materialize. Specifically, the survey found that 57% of the respondents believe that physical climate change is currently having a significant impact on the global economy, while another 38% believe that it will eventually have that impact only at some future point in time.
About a quarter of the respondents think the impact will be noticeable in 10 years, with severe weather events being major triggers that will shock global financial markets.
Nevertheless, investors have so far not seen any major impact on their portfolios from the eminent climate crisis, with only 5% of survey respondents stating that climate change is having a major effect on their asset allocation, 34% describing the impact as moderate, 42% describing it as minor and 16 % saying it has had no impact at all.
Similarly, the market’s reaction to climate change-related news, the survey finds, is not sufficient. Notably, 19% of respondents see the market as being highly under reactive to the climate-related news, while 57% think the market is somewhat under reactive, indicating a gap in market responsiveness to climate events and that there is an urgency for more actions to be taken to narrow the gap.
