Economic Policies for Climate Change

What happens when companies break their climate promises? Almost nothing. A new study has uncovered troubling truths about corporate climate commitments. Out of 1,041 companies with emissions reduction targets set for 2020: -9% (88 firms) openly failed to meet their goals. -31% (320 firms) stopped reporting on their targets without explanation. What happens when companies miss these targets? Practically no consequences: -Only three failed companies faced media scrutiny. -No significant market backlash, media sentiment shifts, or ESG rating downgrades. In contrast, companies were rewarded with positive press and improved ESG ratings simply for announcing these targets. The bigger issue: This accountability gap threatens the credibility of ambitious 2030 and 2050 climate pledges. Unlike financial targets, which are rigorously monitored, emissions goals often exist in a vacuum—without oversight or real consequences for failure. Interestingly, the study found that: -Firms in common-law countries and those with stronger media accountability had better success rates. -High-emitting sectors like energy and materials struggled the most, with the highest rates of "disappeared" targets. With more companies backing away from climate action, we cannot afford to let this cycle continue. It’s time for corporate sustainability leadership to move beyond announcements and deliver measurable, transparent results. Accountability mechanisms—demanded by both regulators and stakeholders are urgently needed. A great piece of work by Xiaoyan Jiang, Shawn Kim, and Shirley Simiao Lu! Let’s learn from these insights to ensure that corporate climate pledges actually deliver. #climatechange #netzero #esg

🌍 Climate Policies to cut Emissions: are they working? A groundbreaking analysis published in @Science has pinpointed the world’s most effective policies in curbing planet-heating pollution, revealing unexpected outcomes 🌱 Researchers examined 1,500 climate policies across 41 countries, identifying just 63 "success stories"—a sobering yet valuable blueprint for impactful action. The study found that policy combinations—rather than standalone initiatives—proved most successful in slashing emissions. Notably, popular measures like coal plant bans need support from additional policies, such as carbon taxes, to be truly effective. The study also highlights the critical role of often unpopular carbon taxes, which, when paired with more accepted measures, can drive significant climate progress. This research emphasizes that while progress has been made, current efforts are insufficient. Scaling up successful strategies globally and planning with a long-term vision is crucial to closing the gap between current emissions and the levels needed to avoid catastrophic warming. The findings underscore a clear message: Smart, combined policy approaches are essential to meaningful #climateaction. Read the article here 👇 https://lnkd.in/eWNhVRFC

New paper, "Sustainable Investing: Evidence From the Field" (with Tom Gosling and Dirk Jenter). We survey 509 equity portfolio managers, of both traditional and sustainable funds, on whether, why, and how they incorporate firms’ environmental and social performance into investment decisions. 1. Both traditional and sustainable funds rank ES last out of six drivers of long-term value: below strategy, operational performance, governance, culture, and capital structure in that order. Clients interested in financial returns should not overweight a fund's ES credentials above its ability to assess these other factors. 2. This low relative ranking doesn't mean that ES is immaterial in absolute terms. Indeed, 73% of sustainable and even 45% of traditional investors expect ES leaders to deliver positive alpha. Unexpectedly, the most popular reason is that ES is a signal for other important value drivers rather than mattering directly. As I wrote in "The End of ESG", ES is "extremely important and nothing special". 3. ES performance influences stock selection, engagement, and voting for 77% of investors (66% traditional, 91% sustainable). Calls to "ban ES" make little sense as many traditional investors voluntarily incorporate it. 4. Only 24% of traditional and 30% of sustainable investors would sacrificing even 1bp of annual return for ES, citing fiduciary duty concerns. Policymakers and the public need to have realistic expectations of the asset management industry's likely ES impact. It will incorporate financially material ES factors, but it won't subsidize ES investments that offer below-market returns. That’s not because fund managers are greenwashing, but because they are fund managers. Their fiduciary duty is to their clients, whose goals are often financial. 5. But non-financial goals can be pursued through ES constraints such as fund mandates. 71% (61% traditional, 84% sustainable) report that ES constraints required them to make different investment decisions. These constraints sometimes reduced the very ES impact they aim to achieve, for example by preventing funds from investing in ES laggards whose performance they could have improved. 6. Overall, traditional and sustainable investors are more similar than commonly believed. Sustainable investors recognise fiduciary duty and are unwilling to sacrifice financial returns for ES. Traditional investors view ES as material and face ES constraints (firmwide policies, client wishes) preventing investment in "unsustainable" stocks. While some clients are attracted by sustainability labels, many traditional funds invest sustainably and many sustainable ones don't - and chasing a label can prevent true sustainable investing. Big thanks to the those who filled in the survey, beta-tested it, distributed it, and were interviewed. We hope that by directly involving practitioners, we can increase the relevance of academic research. https://lnkd.in/eGzRzE5t

Financial Value of Climate Risks and Opportunities 🌍 Companies are under increasing pressure to reflect climate risks and opportunities in financial decision making. This is essential for embedding sustainability into strategy and unlocking measurable business value. ERM highlights that financial valuation of environmental and social factors enables companies to align investment decisions with long term performance. Value is created through energy efficiency, circular models, responsible sourcing, and workforce inclusion. These actions contribute to resilience, innovation, and cost efficiency. Sustainable products are experiencing significantly higher growth rates than conventional alternatives. Efficiency measures can reduce operating costs by up to 30 percent, while green finance instruments can lower the cost of capital. These gains can be captured directly in financial models and forecasts. At the same time, climate related risks are increasing in scale and frequency. Physical risks already account for over 270 billion dollars in annual damages. Transition risks may result in stranded assets worth hundreds of billions. The broader economic cost of unmitigated climate change could reduce global GDP by up to 18 percent by mid century. ERM presents two complementary approaches. Value creation focuses on capturing upside through efficiency, innovation, and market expansion. Risk mitigation addresses downside exposure by incorporating climate risks into business planning and decision processes. Both require integration of ESG into financial structures. This means applying standard financial tools such as internal rate of return and discounted cash flow to evaluate climate related actions. It also involves including environmental risks in sensitivity testing, pricing models, and capital planning frameworks. Translating these impacts into financial terms enables clearer comparison and stronger governance. Capital markets are moving toward companies that manage climate exposure effectively. Lower financing costs, stronger investor confidence, and increased access to sustainability linked capital are all benefits of a robust ESG integration strategy. Quantifying the financial value of climate related risks and opportunities enables companies to move from qualitative ambition to strategic execution. Those that lead in this area are better prepared to compete, attract capital, and deliver long term results. Source: ERM #sustainability #sustainable #esg #business

A Time to Reflect on the Tensions Between Growth and Sustainability #NYCW Next week, world leaders and industry giants will gather for New York Climate Week, ready to discuss collaboration to tackle the climate crisis. It’s a promising step, right? But here’s the twist: this all happens in a country that champions a capitalist economy—one that demands perpetual growth and profits. Can we really expect a system designed for “more, more, more” to suddenly protect the planet and its people? On one hand, development fuels progress, and progress is rooted in growth. On the other hand, that very pursuit of growth undermines sustainability. How can we reconcile this? Take maritime decarbonization: we’re focused on alternative fuels to cut emissions. But maybe the real solution lies in reducing global trade itself. Fewer ships, fewer emissions. Can we embrace that reality in a globalized world? Perhaps it’s time to rethink sustainability altogether. Instead of focusing solely on economic growth, we need to re-balance our approach, placing environmental sustainability on equal footing. Just as governments and regulators have propped up the economy, we need that same commitment to protect our ecosystems. Without environmental checks and balances, does a capitalist economy really set us up for a sustainable future? As we head into Climate Week, it’s worth critically evaluating the very foundations of our assumptions. Are we ready for real change—or are we simply polishing the surface of a flawed system?

🌍🌿 The dominant message from carbon offset proponents today is: "Buy high quality offsets!" From offset detractors it's "Stop buying offsets!" Plenty of anecdotes characterize both, but what would an evidence-based conversation look like? 🔍 To review, an offset market needs to "adequately" distinguish additional 🆕 GHG tons (tons avoided or removed as a result of the market) from the ENORMOUS number of tons avoided and removed for unrelated reasons, address 🔥 permanence and 💲 leakage, and "adequately" quantify offset generation via 🔎 baselines. 🕵♀️ Why should we be prepared for challenges? 1) How do you commoditize something entirely intangibile? 2) Who makes the key decisions? 3) Gaming is predictable. 4) The market will want cheap offsets (often non-additional, temporary, and leakage-prone offsets). Here are some questions an evidence-based offset discussion would tackle: 🌱 Additionality: • How robustly do different “additionality tests” perform in distinguishing legitimate offsets from the very large number of “business-as-usual tons”? • Is there agreement on how many "false positives" are too many? 10%? 20%? 50%? (Getting the rules right requires a decision!!!!) • Do we assess pro-actively how proposed offset methodologies could be “gamed,” and the “false positive” implications? • Will offset insurance options add to or reduce the number of “false positives?” 🌳 Permanence: • Is there agreement on “how long is long enough” to be "permanent?" • How can alternatives to "true" permanence be gamed? • Is there agreement on the risks of relying on nature-based offsets in the face of climate change? • How will offset insurance options influence permanence “gaming?” 🌍 Leakage: • Can potential leakage be robustly assessed (quantified)? • Is there agreement on “how much is too much” when it comes to leakage? • Have simple leakage “buffers” increased or reduced "false positives?" 📊 Baselines: • Is there agreement on how to set baselines to "adequately" limit the number of false positives? • How would the use of dynamic baselines affect the number of false positives? Would it push developers toward low-risk projects (note that the lowest risk tons to develop are non-additional tons). • Are dynamic baselines workable for investors? This list isn't complete, but is suggestive of what evidence-based conversations about carbon offsets would tackle. OMG, not back to first principles, you might say!!? 😂 😡 😱 BUT, some of these questions, critical to designing a credible market, have never been answered. Indeed, they are rarely even considered. Like "how many false positives are too many, and what are the implications for market design?" What does it say that such a fundamental question IMHO never seems to get asked?

📊 Exciting new research from the European Central Bank (ECB) sheds light on how banks are pricing climate risk in their lending practices! 🌿 In their working paper, Carlo Altavilla, Miguel Boucinha, Marco Pagano, and Andrea Polo combine euro-area credit register data with carbon emission information to uncover fascinating insights into the intersection of finance and climate change. 🏦 The study finds that banks are indeed factoring climate risk into their lending decisions. Firms with higher carbon emissions face higher interest rates, while those committed to reducing emissions enjoy lower rates. Interestingly, banks that have publicly committed to decarbonization goals (through initiatives like Science Based Targets initiative) are even more aggressive in this pricing strategy. 💶 But here's where it gets really intriguing: the researchers uncovered a "climate risk-taking channel" of monetary policy. When the ECB tightens monetary policy, banks not only increase their overall credit risk premiums but also amplify their climate risk premiums. This means that during periods of monetary tightening, high-emission firms face a double whammy of increased borrowing costs and reduced access to credit compared to their greener counterparts. The authors argue that while restrictive monetary policy may slow down overall decarbonization efforts, it inadvertently creates a more favourable environment for low-emission firms and those committed to going green. 🌍 These findings are crucial for understanding how the financial sector is adapting to climate change and how monetary policy interacts with climate-related financial risks. It's also clear that the greening of finance is not just a trend, but a fundamental shift in how risk is assessed and priced in our economy. #ClimateFinance #SustainableBanking #MonetaryPolicy #ECB #GreenEconomy #ClimateRisk

“We would be twice as rich in 2100 if there was no climate change.” Every additional degree lowers global GDP by 12%: that is what the latest study by Diego Känzig and Adrien Bilal shows. It dives into the social adaptation challenges brought by a 2°C increase by the end of the century. One key contribution of this study is its updated approach to estimating the “social cost of carbon.” By focusing on global temperature rather than local, it better reflects the economic impact of extreme weather events. With this model, the social cost of carbon is now estimated at $1,056 per ton, nearly six times higher than earlier estimates based on local temperatures. This adjustment drastically changes the cost-benefit analysis for decarbonization policies. In a sector as ours, the economic sense of investment in ecological transition here appears obvious: the cost of inaction is higher than ever! Scientists are still working to identify and prioritize investments where vulnerabilities are at peak. Meanwhile, businesses are trying to adapt to sustain their activities in local areas. There won’t be a single cost of adaptation: reactive spending will be needed. Link to the report 👉 https://lnkd.in/eiS-7C_6

Are offsets any good? Is it still possible to fund climate projects that matter? ❓ Despite the best intentions, the effectiveness of carbon offset has been under scrutiny ever since an investigation sparked by the Guardian, early 2023, revealed that nearly 90% of carbon credits were essentially worthless... ❓ Yet, we need to scale carbon capture to nearly 10 GT of CO2 by 2050 according to the IPCC if we are to achieve Net Zero. It's all the more essential to identify meaningful solutions. Our new Greenly | Certified B Corp study sheds some light on this What we now think we know: 🧐 Offset projects, especially in forestry, had been grossly overstating their impact. 🌲❌ The biggest failings of these offsets is "additionality" : many projects exaggerated threats or were already viable without carbon credits. This resulted in funding activities that would have occurred anyway, thereby providing no real additional environmental benefit. 🌍🔍❌ 🏢⚠️ Major corporations like Shell and Disney relied on these misleading credits to claim carbon neutrality, leading to widespread greenwashing accusations. 📉🕵️♂️ Without rigorous oversight, these schemes misled consumers and investors into thinking they were supporting effective climate action, when in reality, the environmental benefits were negligible. As the new Greenly | Certified B Corp study shows, offsets have therefore become a risk for ESG leaders, sparking tough questions and reducing the investment in them: - Greenwashing vs. Genuine Impact: Are we truly making a difference or just polishing our public image? 💅🕵️♂️ - Local vs. Global: Should we focus on local projects to support our communities or invest globally for broader impact? 🌐🏘️ - Carbon Neutrality: A Myth?: Is "carbon neutrality" just a convenient buzzword? Are we fooling ourselves? 😱🤔 Recreating trust is all the more essential. Guiding principles include: 👉 Companies must focus on measuring and reducing their emissions first, abandoning claims of carbon neutrality, and focusing instead on multi-year strategies typically in line with Science Based Targets initiative 👉 For emissions that can't be reduced right away, funding projects is still interesting, provided they are real. 👉 Funding real projects means in general disregarding forestry or renewable offset projects that typically have little additionality, and instead, focusing on real capture, typically stronger in the following areas: Industrial Processes, Energy efficiency, Ocean, Soil, Mineralization, Direct factory capture, Gas capture... Learn more about these fascinating topic in our new Greenly | Certified B Corp study here : https://lnkd.in/eKeRc6Ny

Saturday rant... this article summarises the main reason why I obsess over clean data to be reported instead of relying on often made-up dodgy offset schemes. TL;DR – Climeworks are a really well-known name in carbon removal and are being exposed for reportedly emitting more CO₂ than they've captured. A customer who paid them monthly for three years has found out that in reality no carbon had been removed. What's even worse though is that the Climeworks figures show just over 1,000 tonnes captured… against more than 1,700 tonnes emitted in a single year of operation. This isn’t a tinpot startup, it’s a heavily backed alleged "leader" in direct air capture. But, this shows that these charlatans can't be allowed to hide from accountability. And it's not just Climeworks. Microsoft are one of the biggest corporate buyers of carbon offsets and they also came under fire for funding a $200 million rainforest protection project in Brazil that failed to deliver. The scheme was riddled with issues like deforestation being displaced elsewhere ("leakage"), and questions about how permanent the carbon savings really were. Meanwhile, Microsoft’s own emissions have gone up over the last three years by more than 20%. So this isn’t a niche problem. It’s sadly endemic... It’s yet another stunningly obvious reason why we shouldn’t treat offsets (of any flavour) as a substitute for real reductions. Too often it's just game-playing by execs to support vaguely net-zero promises in their corporate brochures. The only credible way forward is to measure actual emissions, drive them down through better design, smarter engineering, and holding execs actually accountable (mess with their pay). Conclusion - where possible, you should keep away from dodgy creative carbon accounting and treat offsets with a healthy dose of scepticism and your last resort. https://lnkd.in/eJk3uEJB