The World Is Starting to Pivot on Climate. It’s Not Enough.

30th August, 2021.      //   Climate Change  // 

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Heat waves and wildfires rage throughout the western U.S., amid an unprecedented drought. Record-breaking flooding sweeps through Europe and central China. An increasing loss of lives, livelihoods and property marks these events et al. like them. And a growing consensus within the scientific community finds that much of this disastrous surge wouldn’t be happening if not for underlying changes in Earth’s climate. It’s as if the earth is putting an exclamation mark on a pivot faraway from business as was common, as we now acknowledge the physical and economic risks of temperature change accruing to all or any sectors of the worldwide economy.

That pivot is now underway. Shareholders and courts have put oil majors on notice, while the International Energy Agency published a “we’re out of time” manifesto, declaring no headroom for brand new boring. The U.S. Securities and Exchange Commission is preparing to issue rules on climate disclosures, following other jurisdictions from round the globe.

We would be mistaken to think that such a rapid course correction is enough to meaningfully address the world climate crisis which will fundamentally alter the way societies and markets operate.

This realization is especially acute after a year that has taught us preparing for, and responding to, a challenge of this scale could be a marathon, not a sprint. But unlike the race that athletes have confronted for millennia, the course is continually changing, and everybody will must help one another over the line in time.

The coronavirus pandemic showed us that reaction to crises is far costlier than preparation. With the climate crisis, we might not have the power to take a position in an exceedingly recovery as we pass various natural tipping points. Understanding the facts, working to cut back uncertainties, and recognizing that there could also be unpredictable surprises all contribute to preparedness, resilience, and better outcomes for all folks.

Knowledge, and its transparent distribution, is that the key to successfully responding to a worldwide crisis. It’s created by basic, unfettered research that becomes actionable—both in an exceedingly solutions-oriented framework or serendipitous application. Either can invigorate changes in society, but there must be room for both to prosper.

The pursuit of catalyzing academic research and discovery into decisions facing businesses, governments, and society is that the foundation of the partnership between our two organizations—Columbia University and AllianceBernstein. Capital allocation and engagement with issuers may be augmented by connecting investors to a base of climate knowledge like the Columbia Climate School, thanks to launch this fall. For faculty and scientists, research that’s more focused, via early and regular interaction with the financial sector, results in greater impacts and better allocation of capital to products, services, and firms that have the simplest potential for long-term success and viability.

We see an emerging consensus around how investment decisions may well be better connected to the imperative of transitioning our global energy systems to net zero carbon emissions by mid-century. Consideration of those factors isn’t just “nice to have” but increasingly fundamental, impacting financial performance and altering cash flows and also the valuations. Evaluating and quantifying the risks of global climate change, combined with better identification of the opportunities, results in improved financial decision-making, enhanced outcomes and more-resilient businesses

We must ask the correct questions, bring different constituencies into the discussion, and specially, set standards for action that don’t lose sight of the long-term goal.

For our organizations, the overarching questions are: How will we achieve the transition to a low-carbon economy, keep our national and global economies within planetary boundaries, and elevate global standards of living? How can we best support the complex scaffolding of data, policy and regulatory frameworks, incentives, and allocation of state and investor resources to attain this goal? We don’t have all the answers, but the trail forward is evident.

First, collaboration among traditionally siloed stakeholders is imperative to achieving a world low-carbon transition. Although our colleagues in academia and asset management work with an array of collaborators and clients, this dynamic must move from transactional to systematic to guide to the co-production of information, broadening perspectives to a spectrum of solutions.

Second, the changes in behaviors needed to handle climate must occur across all communities and sectors. this needs granular interactions that acknowledge the nuanced nature of climate-change impacts so as to create tailored approaches to resiliency. In turn, these interactions can steer collaborative research toward inherently more applicable and scalable solutions.

Third, the world transformations that are needed across sectors and communities require the coordinated actions of business, individuals, policymakers, courts, and finance. Active investment managers, through interactions across sectors, industries, asset classes and regions, will play a central role in facilitating the required transformations. Their ability to reallocate investment capital can have a large impact on the transition to net-zero emissions, and also the financing of recent critical infrastructure for clean energy generation, storage and distribution.

Finding solutions to any global challenge to humanity could be a marathon, not a sprint. More precisely, it’s a collective marathon, go past governments and social, cultural and economic constituencies, sometimes in competition, but often together.

A sprint is exciting. But we’ll all must plan for the future—together—if we would like to win the race.