Index and Score Providers, Insured Losses, Vetos, Charging Stations and 2022
This is the last Insights ESG Weekly Update of the year. The Insights ESG team wishes you and your family good health and happy holidays!
Here are 5 ESG insights you might have missed this week:
1. The ESG Mirage-
MSCI, the largest ESG rating company, doesn’t even try to measure the impact of a corporation on the world. It’s all about whether the world might mess with the bottom line.
No single company is more critical to Wall Street’s new profit engine than MSCI, which dominates a foundational yet unregulated piece of the business: producing ratings on corporate “environmental, social, and governance” practices. BlackRock and other investment salesmen use these ESG ratings, as they’re called, to justify a “sustainable” label on stock and bond funds. For a significant number of investors, it’s a powerful attraction.
Yet there’s virtually no connection between MSCI’s “better world” marketing and its methodology. That’s because the ratings don’t measure a company’s impact on the Earth and society. In fact, they gauge the opposite: the potential impact of the world on the company and its shareholders. MSCI doesn’t dispute this characterization. It defends its methodology as the most financially relevant for the companies it rates.
Few factors explain why almost 90% of the stocks in the S&P 500 have wound up in ESG funds built with MSCI’s ratings. What does sustainable mean if it applies to almost every company in a representative sample of the U.S. economy?
2. Global insured catastrophe losses rise to USD 112 billion in 2021, Swiss Re Estimates-
Natural catastrophes caused estimated global insured losses of USD 105 billion in 2021, the fourth-highest since 1970.
”In 2021, insured losses from natural disasters again exceeded the previous ten-year average, continuing the trend of an annual 5–6% rise in losses seen in recent decades. It seems to have become the norm that at least one secondary peril event such as a severe flooding, winter storm or wildfire, each year results in losses of more than USD 10 billion."
The two costliest natural disasters of the year were both recorded in the US. Hurricane Ida wreaked USD 30 – 32 billion in estimated insured damages, including flooding in New York, and winter storm Uri caused USD 15 billion in insured losses. The costliest event in Europe meanwhile was the July flooding in Germany, Belgium and nearby countries, causing up to USD 13 billion in insured losses, in comparison with economic losses of above USD 40 billion.
3. Russia Blocks U.N. Move to Treat Climate Change As A Global Security Threat-
Twelve of the Security Council’s 15 members voted in favor of the resolution Monday. India voted against it, alongside Russia, while China abstained.
The resolution, co-sponsored by Ireland and Niger, would have required the top U.N. body to consider climate change as a possible cause of conflicts, and to look for ways to address the risks and head off potential clashes.
Moscow generally opposes any expansion of the Security Council’s agenda, experts say, and has regularly used its veto to block Western powers from intervening in conflicts, including in Syria. It argued that the resolution, if adopted, would politicize a “scientific and economic issue.”
4. The Tricky Business of Charging Electric Cars-
Building public networks will require business and government to work together.
By 2040 around 60% of all charging will need to take place away from home, requiring a vast public network of charging stations. At the end of 2020 the world had just 1.3m of these public chargers. By some estimates, to meet net- zero emissions goals by 2050 will require 200m of the things.
What to do? Governments are experimenting. As well as subsidising EV sales many are throwing cash at public chargers. America’s infrastructure law sets aside $7.5bn to create 500,000 public stations by 2030. Britain plans to require new buildings to install chargers. Yet the sums are puny and the problems of co-ordination, coverage and convenience will remain.
5. Four Trends in Climate-Related Financial Risk to Watch in 2022-
Transition plans, climate stress tests, portfolio emissions, and carbon credits are set to hog the headlines next year.
2022 promises to be just as dynamic and exciting for climate finance and risk management as the year we’re about to leave behind. Here’s a series of trends Climate Risk Review will be keeping a particularly close eye on:
Transition plans are the new black, climate stress tests get tough, portfolio emissions take the spotlight, and the financialization of carbon credits.
One more thing: We wish you all a wonderful holiday season. Thanks again for your support this year, see you in 2022!
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