Climate Week 2023: The Crucial Role of Finance Takes Center Stage
Key Highlights :
From the moment Climate Week 2023 kicked off last week in New York City, it was clear the event would be marked by historic action to elevate the role of financial markets in confronting climate change. From minimizing and managing climate and nature-related risks to advancing responsible investment and business practices, the week brought new strength to investors, financial institutions, and other capital market leaders as they respond to the economic imperative to transition to a zero emissions future.
For decades, leading investors have recognized that climate change and other sustainability issues represent a major risk to financial markets, because its effects pose a threat to companies’ facilities, workforces, supply chains, communities, and infrastructure. Now, after years of work to incorporate these risks into our financial system, the 15th annual showcase of climate action made clear that markets are taking a big step forward to account for and act on them.
First came the announcement from the world’s fifth-largest economy at Climate Week’s opening ceremony, as California Gov. Gavin Newsom confirmed that he would soon sign into law two historic bills that had just passed the state legislature. The first-in-the-nation legislation will require more than 5,000 large companies that do business in the state to report their global greenhouse gas emissions across their value chains and even more to disclose the climate risks their businesses face. It is precisely the kind of policy that investors have sought for decades, providing crucial insight into which businesses are built to withstand the risks of climate change and capture the opportunities of the future, and it boasted notable support from high-profile companies that see a real opportunity in a consistent and standardized climate reporting process.
Investors got more good news just two days later, with a new tool to address another massive global threat: the accelerating loss of nature and biodiversity. This crisis — distinct yet inseparable from the harmful effects of climate change on the natural world — also represents a major risk to corporate supply chains, but until now, there has been little organized effort to provide investors with the information they need about how companies are managing that risk. That changed at Climate Week, when the market-led Task Force on Nature-related Financial Disclosure published its final recommendations for a new corporate reporting framework on how they depend on and impact nature. Following its release, Nature Action 100 announced that 190 institutional investors with $26.3 assets under management are engaging 100 companies on nature loss. Expect to see more investors get involved in this global initiative and call on companies to act.
While reporting and disclosure provide insight for well-functioning capital markets, fully confronting the climate crisis requires action. To that end, U.S. Treasury Secretary Janet Yellen unveiled new principles last week for financial institutions and investors to achieve their net zero goals. Crucially, these principles call for the private sector to go beyond setting goals and by adopting transition plans — detailed sets of actions, measurements, and methods for achieving those goals. Many investors and companies already publish transition plans, but many more still need to incorporate them, and this guidance will likely help accelerate their adoption.
Private-sector climate action has been bolstered by significant changes in U.S. policy in recent years. The historic federal climate and clean energy investments of the Inflation Reduction Act of 2022, as well as the bipartisan Infrastructure Investment and Jobs Act of 2021 and an increasingly ambitious array of state laws and regulations across the country, were widely celebrated by companies, investors, and policymakers at Climate Week. And for good reason. Strong public policy has made clean energy investment even more financially and economically prudent, leading to increasingly ambitious corporate activity, which in turn supports even bolder public policy, and still more investment. It’s a virtuous cycle that played out live in New York last week, as large U.S. companies cheered on a new initiative from 25 U.S. governors, who pledged to work together on strategies to reduce climate pollution from buildings.
With all this policy success, capital markets have emerged at the focal point of climate action. And there is still so much more that must be done to properly align them with the risks of climate change and nature loss as they grow more dire, as well as the opportunities from confronting them as they rapidly expand. But Climate Week delivered a clear message from New York City, the world’s financial capital. The momentum from the public and private sectors alike points toward more — not less — insight into corporate sustainability risks, and toward more action to address the threats facing our financial system, our economy, and our planet.
