ESG highlights for financial advisers
- Europe’s wildfire crisis intensifies – following record-breaking heatwaves, severe wildfires have continued to sweep across France and Spain, forcing around 375,000 people to evacuate. This underscores the dangers of climate change and extended periods of extreme heat.
- The EU launches electrification plan – in order to meet its climate goals and reduce its reliance on fossil fuels, the EU Commission launched its Electrification Action Plan, aiming for 46% of electrification by 2040, up from 23% currently. This shift could reduce the fossil fuel import bill by €260bn a year, with the current conflict in the Middle East having already cost the region €50bn in additional fossil fuel imports.
- But, amends its Emissions Trading System – despite ambitious climate goals, the EU has amended its Emissions Trading System (ETS) for carbon pricing, to make it more business friendly. While the scheme continues to put a price on carbon – providing financial incentives for carbon heavy industries to reduce emissions – businesses will now receive extra allowances on the condition they invest more into decarbonisation.
- Microsoft’s carbon footprint grows – Microsoft’s latest sustainability report noted that its emissions have risen 25% over the last year, driven by accelerated AI infrastructure. Despite this jump, the company stated it is committed to its goals to be carbon negative, water positive and have zero waste by 2030.
- El Niño is bringing more heat – the current El Niño weather effect could have the potential to push the monthly global average temperature over the two degrees above pre-industrial levels limit. The University of Miami’s ocean and atmospheric research centre estimated there was a 35-40% chance this could be met.
El Niño pushes world towards 2°C
Source: Bloomberg & Berkley Earth
Why this matters
Europe’s heatwaves and wildfires are a stark reminder of the dangers of climate change – which is increasingly translating into economic and investment risk.
With the world already hitting 1.5 degrees above pre-industrial levels, the current El Niño weather pattern could push the monthly global average temperature another two degrees higher – a threshold the 2015 Paris Agreement aimed to prevent.
As the chart shows, the world’s average temperatures have been steadily increasing over recent decades, alongside rising populations and increasing greenhouse gas emissions. The growing physical impacts of climate change are certainly reinforcing the urgency of the transition to a net zero economy, driving policy action, regulation and investment in areas such as electrification, renewable energy and decarbonisation.
The financial impact of climate change is becoming harder to ignore. From extreme weather to tighter regulation, the transition to a low-carbon economy is creating both risks and opportunities for businesses. Understanding which companies are adapting, and which are falling behind is becoming increasingly important for long-term investment returns.
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