Meeting the 2-degree Celsius target set out in the Paris Climate Accord in 2015 will have a significant impact on investors and the sectors they invest in, according to a new report by the FERI Cognitive Finance Institute, a private non-commercial research initiative of FERI, conducted in

cooperation with ISS-Ethix Climate Solutions, a unit of Institutional Shareholder Services Inc. (ISS).

“This report provides investors with an overview of risks and opportunities across all sectors in relation to a low carbon transition,” said Dr. Kevin Schaefers, Co-Founder, FERI Cognitive Finance Institute. “The report also provides an accessible summary of current discussions in this area, including drivers of the transition and potential pathways for actively managing it from the perspective of a financial institution.”

Progress in key technologies needed for the low-carbon transition has so far been insufficient, with many sectors currently not having developed or not deployed the necessary technologies. Key sectors responsible for a high share of direct emissions are electricity and heat production (25%), AFOLU (24%), industry (21%), transport (14%) and buildings (6.4%). Only a minority of companies in these sectors of the sample universe report their emissions, which can be considered as the first step to managing them.

 “Climate change and decarbonisation are having wide-ranging impacts on all industry sectors, but these impacts will vary in their severity, duration and imminence,” said Dr. Maximilian Horster, Head of ISS-Ethix Climate Solutions. “Investors need to monitor all sectors, focusing on those most strongly affected.”

 

The report highlights that as the timelines associated with forecasts become current, different developments will shape the situation investors face. These include the discrepancy between decarbonisation commitments and required actions to achieve the transition; the various structures of a low carbon economy and reliance on different technologies; and the continued subsidies for fossil fuels in many markets. Three underlying opportunities exist to address low-carbon objectives: improving energy efficiency, reducing carbon intensity of electricity and end-use of energy.