The climate emergency: beyond the tipping point

Index investing and the climate emergency

The past five years have been the hottest recorded since 1850;[1] climate change has become an emergency. For investors committed to a sustainable future, index investing presents opportunities for positive climate impact.

The increasing urgency of climate change has become a key concern for everyone, investors included.  On one hand, investors are seeing climate change as an investment risk because it is closely associated with asset-specific risks as well as reputational risks for companies not taking the crisis seriously.  On the other hand, research and innovation in climate solutions could prove to offer opportunities over the long term.  Not forgetting the growing desire of investors to reflect their values in their investment portfolios.

Another key driver of the increasing importance of climate investing is regulation.  In July 2021 the European Commission set out its intention to achieve climate neutrality across the EU by 2050 including a minimum 55% net reduction in greenhouse gas emissions by 2030 – with finance expected to play its part. This includes the phase-out of coal, curtailing deforestation, the transition to electric vehicles, and investment in renewables.

Index Investors and the climate crisis

While historically climate investing focused on impact investing strategies or active investment, we believe that it is essential that all investors have an opportunity to incorporate climate in their portfolios – whether they want to manage risks or simply reflect their values.  By more investors adopting climate positive investing we have the opportunity for greater impact – so low cost, simple and accessible solutions, like climate ETFs, are an important tool to add to the climate investing toolbox. 

That is why we welcomed the launch of the EU climate benchmark labels in 2020. These robust, measurable investment indices have been designed to re-orientate capital to support a climate-resilient economy. 

Continuing to innovate

Five years ago, Amundi was at the forefront of climate index innovations, co-developing the MSCI Low Carbon Leaders index series with French and Swedish pension funds and offering ETF investors the opportunity to invest in a low carbon strategy.  Today, we remain committed to innovating in the sector.  Improvements in data quality and availability have led to us creating ETFs using the new generation of EU labelled climate indices that consider indirect emissions and forward-looking climate commitments alongside historical data.

Engage for impact

When thinking about an index approach to climate investing it is important to remember the role of active ownership; engagement, voting and even divestment are possible with passive investing if your manager has a robust approach.  Ultimately, this can play a key role in achieving climate investment goals.

Amundi offers an extensive climate ETF range, covering equity and fixed income exposures across the levels of climate integration.  Find out more at amundietf.com

[1] Source: IPCC, Climate Change 2021: the Physical Science Basis, 9 August 2021

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