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Investors’ eyes firmly on climate change

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Although awareness of why we need to respect and protect nature is slow at being turned into action, appetite for new technologies and sustainable products is spurring investment across many sectors.

In this weekly round-up, we explore the highlights of sustainable finance.

Slow progress on biodiversity

Climate change is an increasingly higher priority for investors. According to a survey by Wellington Management, 79% asset owners expressly consider it in their decision-making, 97% of which expect to increase climate focus over the next three years.

As for biodiversity, more investors are becoming aware of why we need to respect and protect nature, but this awareness is not yet being turned into action, as found by an analysis of asset managers’ voting behaviour at proxy seasons.

Perhaps the emergence of more tools will help them. Coinciding with the UN’s International Day for Biological Diversity, Institutional Shareholder Services and Qontigo announced the release of the ISS STOXX Biodiversity Index Suite, intended to help interested clients align portfolios with their biodiversity impact reduction goals. All indices in the suite exclude companies involved in activities assessed to be causing significant harm to biodiversity or reducing the biodiversity footprint.

More research is on the way: the United Nations Environment Programme Finance Initiative has launched a series of publications to help financial institutions understand the relevance and implications of the Kunming-Montreal Global Biodiversity Framework (GBF). Last week’s briefing provides banks with a first overview of how the GBF applies to their industry through the axes of risk, opportunities, dependencies and impacts. It is intended to support the industry in managing associated risks, capturing relevant opportunities and preparing for anticipated policy developments that will yield new compliance and disclosure requirements.

A flurry of tools

Amid strong demand for sustainable financial products, buyers are looking for tools to support their due diligence. Participants in the green-bond market have traditionally examined a green bond’s ‘use of proceeds’ to check the legitimacy of these projects and whether the bond was created in line with the Green Bond Principles.

While examining the use of proceeds remains a key element of assessing green bonds, MSCI (NYSE:MSCI) identified four additional metrics that could be used to look at green bonds and their issuers in a more quantitative way, offering a new set of lenses with which to tackle green-bond analysis:

  • MSCI’s Total Portfolio Footprinting;
  • MSCI’s Implied Temperature Rise;
  • MSCI’s Climate Value-at-Risk;
  • The terms/language of sustainability-linked bonds.

Similarly, LCP launched a new tool to help trustees and sponsors to integrate climate risks and opportunities into their assessment of covenant strength. The company said that pension scheme stakeholders should carefully analyse company business plans and forecasts, linking what was promised to a sponsor’s stakeholders around net-zero and climate risk mitigation goals and the cost of implementation.

Investing in innovation

The need for new technologies to address climate change is spurring significant investment. This week JPMorgan Chase (NYSE:JPM) signed long-term agreements to purchase over $200 million in carbon dioxide removal to help speed and scale their growth and development. These agreements, signed with companies such as Climeworks and Frontier, are expected to remove and store 800,000 metric tons of carbon dioxide equivalent from the atmosphere.

Meanwhile, Collaborative Fund and the Wyss Institute for Biologically Inspired Engineering at Harvard University are joining forces to launch a research and innovation alliance focused on new, sustainable materials to fight climate change. As part of the alliance, Collaborative Fund will provide $15 million to create a Laboratory for Sustainable Materials Research and Innovation at the Wyss Institute to support research into transformational technology with strong commercial potential.

Meanwhile, Global X ETFs, the New York-based provider of exchange-traded funds (ETFs), has launched the Global X Carbon Credits Strategy ETF (NTRL). This fund, which invests in a basket of carbon credit or allowance futures across four regions, is Global X’s latest addition to its growing suite of thematic-based funds.

Hamilton Lane (NASDAQ:HLNE) brought its Hamilton Lane Impact Fund II to a final close, with total commitments of $370 million. The fund is a closed-end investment vehicle that aims to generate attractive private equity returns alongside positive social and environmental impact. The Fund invests in businesses around the world with a focus on clean energy transition, sustainable processes, health and wellness and/or community development.

New players are making their debut in the space. Regenerate Asset Management has unveiled its first fund, the Regenerate European Sustainable Agriculture Fund. It will invest directly in agricultural businesses growing and supplying regenerative and climate-positive produce in Europe. These businesses are actively transitioning to sustainable or regenerative practices, such as improving soil health, carbon sequestration, biodiversity, water conservation, circular practices, nutrient density and farm emissions.

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