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Countering climate-change

Contributor
  • Mary Green

    Client Portfolio Manager

Three things to watch in 2021.

Improving corporate carbon disclosures At the 2015 Paris Summit, the world agreed to limit global warming to 2 degrees. Despite 2020 Covid-related lockdowns, the planet is on a trajectory toward 4 degrees. 2020’s extreme weather events—wildfires, hurricanes and punishing storms around the globe—illustrate that the effects of climate change are no longer theoretical. They are tangible. In 2021 companies will need to mitigate the physical risks of climate change and step up efforts to reduce carbon emissions to stem the crisis. The United Nation’s postponed Climate Change Summit (COP 26) will underscore this imperative.

Accelerating U.S. climate action The U.S. is back in the climate-action game. President-elect Joe Biden has appointed not one, but two climate czars: former EPA administrator Gina McCarthy (focusing on domestic-climate policy) and John Kerry (coordinating international efforts as special presidential envoy for climate). Biden’s pledge to rejoin the Paris agreement on day-one sends an important message to the world, notably China, that the U.S. is no longer sidelined on climate action. And that means there are fewer excuses for other countries to sit it out.

Progress toward better data quality and coverage Companies are drowning in environmental, social and governance (ESG) disclosures and competing frameworks. While 2021 likely won’t see standardization of those disclosures, increasing pressure from regulators, the new administration and investors will highlight the need for convergence of standards. U.S. public corporations will eventually be required to disclose relevant, financially material ESG risks. We expect the Sustainable Accounting Standards Board’s framework to be more broadly adopted to help investors better compare companies. Quality ESG data is critical to advisors who cite lack of robust data as a barrier to implementing ESG strategies within client portfolios, and to all investors who believe that responsible corporate behavior underpins sustainable long-term wealth creation.

DISCLOSURES

Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

There is no guarantee that considering ESG risks will be a successful investment approach.

Federated Advisory Services Company

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