Climate change has been a core sustainability investment theme for a few years now.

Close to US $415 billion of assets were held in climate funds as at year-end of 2022 – up from around US$220 billion only two years earlier.1 We have also seen a major increase in carbon net-zero commitments. 92% of global economic activity linked to 88% of global emissions are now covered by a net-zero goal (Chart 1).2 More than half of some 2,000 the world’s largest companies have a net-zero goal, representing 66% of their total annual revenues.2 What’s more, the number of corporate net-zero commitments grew by more than 40% in only 16 months – from 702 in June 2022 to 1,016 in November 2023.2

Chart 1. Net-zero goals, by world, country, city, company

Source: Net Zero Tracker, accessed November 20 2023.

Beyond climate change

As we look ahead to 2024, we’re expecting to see more measures that will help to convert these good intentions into reality. That said, focusing only on decarbonization won't be enough. Climate-transition plans also need to deliver:

  • A just transition
  • A nature-positive transition
  • A resilient transition

These are paths to net zero that aren’t detrimental to the natural world and society. They also recognize the importance of adapting to the physical risks – storms, floods, and droughts – caused by climate change. This is a key focus of the United Nations’ annual climate conference, COP28, which is currently underway in Dubai.

Investor efforts are focused on being able to assess the interconnected effects of these transition goals, as well as to meet the demands of growing regulatory disclosure. However, getting data that helps decision making will be a big challenge. We look at the key developments in each:

A socially-just transition

We expect to see a much stronger focus on social factors in 2024. The energy transition can't be successful without the consideration of key stakeholders – it needs workers with the right skills, supportive local communities and consumers who can afford to use these new low-carbon technologies.

In addition, we expect growing requirements to measure and disclose social metrics across investment portfolios. Initiatives that will help drive a growing focus on demonstrating how social issues – human rights, labor standards, diversity, equity, and inclusion – are assessed for their financial impact on investments and integrated into the investment process.

Another social issue we expect to become more prominent is the impact of technology, and in particular artificial intelligence (AI), on people.

A nature-positive transition

There’s no net zero without preserving natural capital – the stocks of plants, animals, air, water, soil and minerals that collectively yield benefits to people. For example, land use is a major carbon source that can be turned into a store of carbon with the right actions, such as tackling deforestation.

There will be a growing focus on food production which contributes to around one third of global emissions but, so far, has not received the same level of attention as energy. The UN's Food and Agriculture Organization is expected to publish a net zero roadmap for food and agriculture at COP28, which will provide guidance for businesses and investors.

We’ve seen more investor interest in nature and biodiversity following the launch of the Global Biodiversity Framework in 2022 and the publication of the TNFD’s final report on nature-related disclosure requirements. The attention will shift to securing data to meet those requirements and importantly, identifying nature-related investment opportunities. But getting meaningful data is a major challenge. Our review of data providers shows they are competing to develop methodologies as very little is disclosed by the companies themselves.

Regulation is also expected to be a key driver. In the UK, for example, the ‘biodiversity net gain’ policy will come into force next year. This will require land developments to show a positive impact on biodiversity.

A resilient transition

The world has already reached 1.25°C warming versus pre-industrial era levels, and this year is expected to be the hottest on record. Climate change comes with devastating effects on communities everywhere and yet emissions continue to rise – with another 1.2% increase in 2022, a new record.

It's now too late to focus on reducing greenhouse-gas emissions alone. We also need to invest in adaptation measures to build resilience to the physical impact of climate change. For example, investment is needed in new infrastructure to deal with rising sea levels as well as innovative technologies to make crops more heat resistant. Most climate strategies focus on transition solutions, but we expect to see a shift next year with capital increasingly flowing into these adaptation solutions.

Final thoughts

In 2024, investors need to be prepared to demonstrate how they consider these complex, interconnected requirements within their investment processes and transition plans. Investors need to focus on measuring and assessing data to understand transition-related risks and opportunities as well as meet the more demanding sustainability-related disclosure environment coming next year. We believe emerging technologies, such as AI and satellite data analysis, could transform the way we measure and disclose sustainability-related data.

To deliver a just, nature-positive, and resilient transition, we need continued technological innovation, political will, and a strong policy landscape to mobilize private capital. Investors can play their part by engaging with policymakers and companies to encourage credible and comprehensive transition plans, and to seek more transparency.