Climate change: a critical risk on the agenda

2020 was supposed to be the year when policymakers, corporates and investors charged ahead in the fight against climate change. Instead, it has become the year of the coronavirus pandemic. Will climate change find its way on the agenda or be sacrificed yet again?

Three scenarios to tackle climate change issues after the crisis

In a recent research paper on climate¹, Amundi highlights that climate change influence on portfolios depends on which of the following scenarios will unfold:

• the optimistic scenario, where climate change is integrated into the decision-making process of both public and private sector stakeholders.
• the pessimistic scenario, where short-term objectives and balance sheet protection overshadow the fight against climate change.
• the status quo scenario, where risks induced by climate change are not fully integrated into recovery plans and internalised by the private sector.

From an investor perspective, risks and investments would differ from one scenario to another.

A deeper integration of climate change-related risks and opportunities with an increase in low-carbon investments and engagement activities are potential behaviours by investors in response to both pessimistic and status quo scenarios.

In the optimistic scenario, investing in line with the Paris Agreement would be easier and more standardised. Investors should expect ESG factors to materialise more and more in assets’ performances and capitalise on these.

Investors demand for sustainable finance instruments is on the shelf

Back to a market perspective, climate change is a rising concern in Asia. In the second edition of the ESG survey conducted by The Economist² in partnership with Amundi, market practitioners agreed on green fixed income limitations and showed optimism about recent developments in debt products. Numerous challenges remain though.

Jean-Jacques Barbéris, Head of Institutional and Corporate Clients Coverage, acknowledges it. “The fight against climate change is a matter of public policies,” he says. “The financial industry, alongside corporates, does have a role to play, notably by complying with regulation made by policymakers. But the challenge is fundamentally a political one.”

On that stage, a cultural shift and a broader use of sustainable financial instruments would help.

ESG methodologies: quality of assets and investment convictions are keys

The quality of assets, as highlighted by Mr. Barbéris, is central. “Concerning green bonds, Amundi is very selective and keen on insuring quality. It’s a sine qua non condition to correctly tackle climate change issues. I also believe on building the right methodology rather than focusing on data. Regulation will deal with data. Methodology is the asset manager conviction on ESG.” Employing a holistic approach, Amundi has launched several green finance initiatives (scan the QR code to find out more).

¹ The Day After #7 - Climate Change Post Covid-19: a Crisis at a Crossroad, available at research-center.amundi.com
² Sustainable and actionable: An ESG study of climate and social challenge for Asia, available at https://www.amundi.com/int/

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