Third-Quarter 2022 Edition: Turning climate goals into action

Introduction

Around the globe, countries are facing growing exposure to the physical impacts of climate change. These impacts take center stage as we head into a busy fall season of climate events — starting with Climate Week NYC in September and culminating with the U.N.’s Climate Change Conference, known as COP27, in November. The inaugural S&P Global Sustainability Quarterly is a roadmap to understanding this evolving climate landscape.

Climate Risk & Resilience

Research from S&P Global Ratings explores the vulnerability and readiness of more than 130 countries to climate change over the next 30 years — and the GDP at stake under different climate scenarios. The economic impact is significant: an estimated 4% of global GDP could be exposed to losses under our current trajectory on commitments to address climate change, ranging up to an estimated 18% of GDP at risk for certain countries. For context, the impact of the COVID-19 pandemic on global GDP in 2020 was negative 3.3%, according to the World Bank.

Economic loss estimates show that climate hazards result in GDP losses that are on average 3.6 times greater for lower-income countries than wealthier ones. Economic losses are likely to be higher and more persistent for those same countries, which have less capacity to adapt, weaker institutions and fewer financial resources.

At the same time, we find that international cooperation and support can help the most vulnerable countries finance a rising adaptation gap while building resilience to climate change, a problem to which they have contributed relatively little. Such collaboration will be key heading into global conversations between the public and private sectors at the upcoming COP27.

Sustainable Finance

Research from S&P Global Sustainable1, in collaboration with S&P Global Market Intelligence and S&P Dow Jones Indices, provides a snapshot of the current state of equity investing. Our data suggests that there is a long way to go toward aligning investor capital with the pathway that averts the worst consequences of climate change. From a universe of nearly 12,000 equity mutual funds and exchange-traded funds representing more than $20 trillion in market value, we found that about 11% are currently aligned with the Paris Agreement goal of limiting global warming to “well below” 2°C.

Carbon Pricing

In this environment, government policies seeking to transition economies to net-zero emissions are also poised to increase globally. Research from S&P Global Ratings, S&P Global Commodity Insights, and S&P Global Sustainable1 delves into one such approach — carbon pricing, which many economists view as one of the most efficient policy levers to encourage reductions of GHG emissions. At present, carbon pricing regulations are in place for around a quarter of global emissions. Over time, we expect more countries will have to adopt some form of carbon pricing as part of a mix of policy approaches to achieving the Paris Agreement’s goal.

Assuming such a future, with more widespread carbon pricing policies, it seems clear that companies with a greater ability to adjust their business models and operations will be less exposed — and perhaps better able to compete. Over time, investor demand for climate-related disclosures from companies is also likely to increase.

Energy Transition

The heightened urgency of the climate crisis has accelerated calls for the global energy industry to shift from fossil-based systems of energy production and consumption — including oil, natural gas, and coal — to renewable energy sources. But, as research from S&P Global Commodity Insights shows, accelerating the expansion of renewables generation, in line with limiting global warming to less than 2°C per year, would require significant additional momentum beyond current market economics.

Future of Copper

The path to the energy transition is not always straightforward. Take copper, for example — this “metal of electrification” is essential to all energy transition plans. Deeper electrification requires wires, and wires are primarily made from copper. Technologies critical to the energy transition, such as electric vehicles, charging infrastructure, solar photovoltaics, wind and batteries, all require much more copper than conventional fossil-based counterparts.

Research from S&P Global’s Economics & Country Risk, Commodity Insights, and Mobility teams shows that this growing appetite for copper could be an obstacle for energy transition and climate goals. Demand for copper will double by 2035, opening a supply gap that threatens climate goals and poses serious challenges to reaching net zero emissions by 2050. There is no way to forestall the projected shortages in copper without taking steps to increase supply. Our research identifies three priority areas for consideration.

Understanding the landscape for climate change can help identify solutions. As the sustainability world works at speed to turn climate goals into action, we hope our quarterly sustainability research journal will serve as a useful tool in facilitating such understanding and driving measurable progress

Richard Mattison
President, S&P Global Sustainable1

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Climate Risk & Resilience

Weather Warning: Assessing Countries’ Vulnerability To Economic Losses From Physical Climate Risks

Research from S&P Global Ratings explores the vulnerability and readiness of more than 130 countries to climate change over the next 30 years — and the GDP at stake under different climate scenarios. Economic loss estimates show that climate hazards result in GDP losses that are on average 3.6 times greater for lower-income countries than wealthier ones. Economic losses are likely to be higher and more persistent for those same countries, which have less capacity to adapt, weaker institutions, and fewer financial resources.

Listen: Beyond the Buzz —
Weather Warning Countries’ Vulnerability to Physical Climate Risks

In this episode, host Corinne Bendersky is joined by S&P Global Ratings analysts Dr. Paul Munday, Global Adaptation and Resilience Specialist, and Marion Amiot, Head of Climate Economics. They break-down a commentary they published recently that explores the vulnerability of 135 countries to physical climate change over the next 30 years. They unveil the stark discrepancies between the scale and permanence of economic impacts, by region and country. As the frequency and severity of events such as drought, floods, and wildfires increases, the financial and social costs to economies and people will be felt in different ways.

More on this episode

Sustainable Finance

Green Funds Have a Paris Alignment Problem

Research from S&P Global Sustainable1 in collaboration with S&P Global Market Intelligence and S&P Global Indices provides a snapshot of the current state of equity investing. From a universe of nearly 12,000 equity mutual funds and exchange-traded funds representing more than $20 trillion in market value, we found that about 11% are currently aligned with the Paris Agreement goal of limiting global warming to “well below” 2 degrees C. In other words, there is a long way to go toward aligning investor capital with the pathway that averts the worst consequences of climate change.

Listen: ESG Insider —
Unpacking the SEC’s Proposed ESG Fund Rules

Amid rapid growth in ESG investment, regulators around the world are developing sustainability-focused rules. In this episode of the ESG Insider podcast, we explore new rules proposed by the U.S. Securities and Exchange Commission that involve sustainable or ESG-labeled funds.

To get a better understanding, we talk with Aniket Shah, managing director and global head of environmental, social and governance and sustainability research at Jefferies Group. We also speak with George Raine, a partner in the asset management group at the law firm Ropes & Gray, and Lance Dial, a partner in the ESG & Sustainability group at law firm Morgan Lewis.

More on this episode

Carbon Pricing

Carbon Pricing, In Various Forms, Is Likely To Spread In The Move To Net Zero

Government policies seeking to transition economies to net zero emissions are likely to increase globally amid the urgency of mitigating climate change impacts. These are likely to include some form of carbon pricing, which many economists view as one of the most efficient policy levers to encourage emissions reductions. While relatively few carbon pricing frameworks are in place at present, S&P Global expects more countries to adopt some form of carbon pricing as part of broader policy mixes as the world moves to mitigate global warming.

Listen: Platts Future Energy —
Crunch Time for EU Carbon Market Reform as Legislators Finalise Negotiating Positions

Attempts to overhaul the EU Emissions Trading System have entered a crunch period as the European Parliament and European Council aim to finalise their negotiating positions by the end of June. The EU Parliament rejected draft legislation proposed by lawmakers in its plenary vote on June 8, but is preparing for a second vote on June 22. EU ETS revisions are being considered against a backdrop of very high energy prices, surging inflation and a military conflict on Europe’s eastern flank.

S&P Global Commodity Insights’ Frank Watson and Michael Evans take a deep dive into the key elements in the negotiations and why they matter for carbon prices and other energy commodity markets in Europe.

More on this episode

Energy Transition

Energy Transition: Renewables Remain The Cornerstone Of Future Power Generation

The heightened urgency of the climate crisis has accelerated calls for the global energy industry to shift from fossil-based systems of energy production and consumption — including oil, natural gas, and coal — to renewable energy sources. But as research from S&P Global Commodity Insights shows, accelerating the expansion of renewables generation, in line with limiting global warming to less than 2 degrees C per year, would require significant additional momentum beyond market economics.

Listen: ESG Insider —
What a New EU Energy Plan Means for Renewables Investment

The European Commission in May proposed its ‘REPowerEU’ plan to wean the EU off supplies of Russian fossil fuels and accelerate its transition to a low-carbon economy. In this episode of the ESG Insider podcast, we talk with experts about the plan and what it means for investment in renewables.

We speak with Elisabetta Cornago, senior research fellow at think tank the Centre for European Reform. We talk to Hans Stegeman, chief investment strategist at asset manager Triodos Investment Management. And we hear from Dries Acke, policy director of SolarPower Europe, which represents the solar power industry.

More on this episode

Future of Copper

Growing Appetite for Copper Threatens Energy Transition and Climate Goals

Technologies critical to the energy transition such as electric vehicles, charging infrastructure, solar photovoltaics, wind, and batteries all require much more copper than conventional counterparts. Research from S&P Global’s Economics & Country Risk, Commodity Insights, and Mobility teams shows that this growing appetite for copper could be an obstacle for energy transition and climate goals. Demand for copper will double by 2035, opening a supply gap that poses serious challenges to reaching net zero emissions by 2050.

Listen: Platts Future Energy —
Are the Nickel and Cobalt Chemical Markets Shifting Away From Traditional Pricing Mechanisms?

Nickel and cobalt chemical prices have traditionally been determined by their respective finished metal prices, but lately they have shifted towards each being priced independently. Both nickel and cobalt metal are not driven by battery demand, so participants in the chemical products markets are seeking alternatives.

In this episode of the Platts Future Energy podcast Scott Yarham, Jesline Tang and Michael Greenfield explore what the current state of play is and the reported move by the market to seek alternative pricing practices.

More on this episode

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