35501

Addressing climate change will require the largest reconstruction of the global economy since the Industrial Revolution, according to a report published today by MSCI Inc, a specialist provider of critical decision support tools and services for the global investment community. 

‘The Role of Capital in the Net-Zero Revolution’ highlights how capital markets participants must be a powerful and positive force to urgently drive the systemic transformation needed to avert climate catastrophe. This call to action identifies specific steps that companies as well as owners and managers of capital must take to drive the achievement of a net-zero economy by 2050. 

Analysis by MSCI of its All Country World Investable Markets Index (MSCI ACWI IMI) – a measure of approximately 9,000 publicly listed companies across 50 developed and emerging markets with a market value of over USD70 trillion – revealed those companies annually emit an estimated 11.2 gigatons of carbon dioxide equivalent (CO2). MSCI’s model indicates that, without any change to current practices, the annual emissions of these companies could reach 16.8 gigatons of CO2 by 2050, leading to a planet that is 3.5˚C warmer by the end of the century. This trajectory demonstrates the tremendous challenge in reaching net-zero and the urgency to act now. 

Therefore, MSCI calls upon:  

• Asset owners including sovereign wealth funds, pension funds, endowments, insurance companies and individuals to reallocate capital to less emission intensive investments and to green solutions aligned with accepted warming scenarios; target a year-on-year decarbonisation of portfolios that allows for a reduction in the world’s total emissions by 10 per cent a year; and transition to a policy benchmark to help portfolios move toward net-zero 
• Asset managers to use their voting rights and direct engagement with companies to urge them to align with net-zero targets; support owners of capital by building expertise to fund clean energy; and develop risk management and reporting expertise in accordance with the guidelines of the Task Force on Climate-related Financial Disclosures (TCFD) 
• Banks to support businesses with capital to invent and scale clean energy; and drive developments in corporate lending and corporate debt and equity issuance linking terms of capital to net-zero objectives 
• Companies to set emissions targets to reach net-zero no later than 2050; articulate credible and specific strategies to achieve these reductions; and incorporate best practices when reporting and disclosing data and initiatives undertaken 

Reflective of MSCI’s commitment to support the transparency needed to evaluate the progress of decarbonisation, MSCI will publish quarterly the MSCI ACWI IMI Net-Zero Tracker. This report will indicate the aggregate temperature alignment of MSCI ACWI IMI with a 1.5˚C trajectory, as well as highlight the companies and sectors that have made the greatest progress in the path toward net-zero and identify the world’s laggards. MSCI will consult with market participants to develop and enhance the report over time. 

Henry Fernandez, Chairman and Chief Executive Officer, MSCI, comments: “On the current trajectory, MSCI ACWI IMI will be scarcely greener in 2050 than in 2020, with an estimated 80 per cent of companies exceeding the emissions budget needed to be well below 2.0˚C. This is not a path to net-zero. Capital markets are an essential and critical force to drive the transition to net-zero with concerted action from all participants, ranging from a reallocation of capital by asset owners, to effective channelling of funds by asset managers and banks to greener investments and innovation, alongside the commitment of companies. 

“A global index such as the MSCI ACWI IMI can serve as a measure of the carbon trajectory of the world’s companies. By acting as the objective and transparent measure of progress, we can help drive accountability, reflect the voice of the world’s largest investors and identify the companies making progress to power the systemic transformation needed for a net-zero revolution.”