Environmental Finance: What intelligence do market participants need to enable a just transition to a sustainable future?
Richard Mattison: If we attempt to move towards a zero-carbon future while ignoring economic and social imperatives, we’re not going to make it. Policymakers won’t be able to establish the right policies in the face of societal pressures and companies will not be able to invest in net zero without the right economic incentives.
For example, in some countries, hydroelectric power will have a critical role in the transition to net zero and, looked at from a purely climate objective, you might want to fund those projects as fast as possible. But hydropower comes with trade-offs in certain situations – displacing populations, destroying cultural heritage, impacting nature and biodiversity.
ESG is about balancing those trade-offs. That’s why it’s so important to consider sustainability in its broadest context. We need more intelligence on ESG, not less, to find the optimal balance to deploy capital as fast as possible.
EF: What demand are you seeing from companies and investors regarding new and emerging data?
RM: There’s been enormous interest in nature as a topic. But it’s very hard to analyse nature risk and opportunity in the context of financial decisionmaking: you need a really good understanding of what’s happening to the planet, you need location-specific information, and you need that information to be presented in a context that’s relevant to companies’ assets, supply chains and the way commodities are created. That then needs to be aggregated through to lending portfolios and pension funds and other institutional investors. It’s a big job, but it’s doable. We’re working with leading organisations, including the UNEP-World Conservation Monitoring Centre, to leverage the best data in the marketplace to do so.
The products we have associated with ESG regulation are some of the fastest growing in our suite of tools. We have an enhanced EU Taxonomy solution, which looks at the alignment of a company’s activities based on its substantial contribution, do no significant harm and minimum social safeguards criteria. And we have a Sustainable Finance Disclosures Regulation [SFDR] data solution, which looks at principle adverse impact indicators at the entity and product levels.
We’re also seeing strong demand for our climate information. We have some incredibly detailed information on transition risk; in the automotive sector, for example, we can provide bottom-up emission trajectory forecasts, based on production of different types of cars, out to 2030, including Scope 3. On physical risk, we have analysis of close to 3 million assets owned by companies, and analysis showing the financial losses associated with different climate scenarios.
EF: How is S&P Global Sustainable1 supporting the increasing and evolving needs of companies and investors?
RM: We established S&P Global Sustainable1 in April 2021, combining resources from across six divisions of S&P Global to provide a full suite of data intelligence, benchmarking analytics, evaluations and opinions, and indices to the marketplace that offers our clients a 360-degree view to help them achieve their sustainability goals.
Each division has incredibly deep expertise. Our job is to bring that together in a way that makes sense in the context of things like climate change, nature risk and ESG. We have unparalleled information, in terms of commodities, the energy sector, mining and metals, and the auto and transportation sector, for example, and very deep expertise on the engineering solutions that are going to be required to address climate change.
Also, last October, we collaborated with the Ford Foundation, Hamilton lane and Omidyar Network to launch Novata, a new technology platform designed to streamline ESG reporting across private markets. It is critical we have more transparency there, because we may find large public companies divesting fossil fuel assets into these private markets.
And, in January this year, we acquired the Climate Service. It has a best-in-class offering in terms of how you analyse physical climate risks in a financial context. That acquisition brings a whole team of climate scientists into our organisation; that’s a very exciting development for us.
EF: What do you think the future holds for ESG investing?
RM: When I think about the future, I think about the near past. A few years ago, net-zero commitments were minimal. Now, we’ve got more than 5,000 companies and 128 countries with net-zero targets. We’ve got more than $130 trillion of capital committed to supporting the economic transition to net zero, and those asset managers, banks, insurance companies and pension funds, and ourselves as part of the Glasgow Financial Alliance for Net Zero, obliged to publish precisely how we’re going to get to net zero.
So, I think there’s going to be more accountability and those targets are going to be more tangible than they have been in the past. A 2050 target has to become 2023, 2025 and 2030 targets, with real details around how they are going to be achieved. I’m encouraged because the companies, banks and investors that I speak to are doing some incredibly careful and thoughtful work to really understand how to invest in this transition to a sustainable future.
Our role is to provide the right intelligence to key decision makers to ensure that, as we transition to a low-carbon future, we’re doing so mindful of some of the other forces that can shape society as well. We’re very excited about that.
For more information, see www.spglobal.com/sustainable1