1.5C breach: We must lean further towards driving real world change

Investors react to Earth temperatures breaching 1.5C for the first time

The world is on an “unsustainable path” and more needs to be done by investors to direct capital towards mitigating climate change investment, professionals said as they react to the news global temperatures breached 1.5C for a year for the first time.

Monthly data released by Copernicus Climate Change Service (C3S) last week showed temperatures have exceeded 1.5C for the first time as January 2024 was the warmest on record.

The breach is “another reminder” of the precarious situation the earth faces, according to Virginie Deru, head of RI research at AXA Investment Managers, who alongside portfolio manager at TAM Asset Management Daniel Babington called for a renewed focus on engagement strategies with companies that significantly contribute to global warming – specifically the oil and gas industry.

Derue said: “The news that global warming has exceeded 1.5C across an entire year serves as another reminder that the world is on an unsustainable path.

“Facilitating the transition to a lower carbon world is set to draw further attention from both responsible investors and regulators in 2024 – echoing the call and outcome of last year’s United Nations (UN) climate change conference, COP28.”

To drive change, “what needs to be financed is the transition to a greener economy, and particularly investments which support the gradual shift of companies towards more sustainable business models.

“For the oil and gas industry, we expect the sector to encounter a renewed focus from both investors, and society more broadly, regarding companies’ investments in renewables and operational practices – especially methane, another area emphasised at COP28.”

Echoing this, Babington suggested investors review asset allocations to maintain the 1.5C limit. He said: “Headline breaches like this will provoke investors to follow a similar practice by reviewing the efficacy of the lenses through which we assess sustainability, yielding the conclusion that we must lean further towards driving a real-world change through our asset allocation decisions.

“This could be by investing in solution providers making unsustainable sectors more sustainable, or by placing greater value on and focusing more effort on the power of engagement as a force of driving positive change.”

Additionally, Derue highlighted the benefits of professionals setting short-term targets and tracking progress to reach medium and longer-term goals. “On a practical level, the responsible investment industry is entering the second phase of climate strategies assessment. The deliverability of short-term targets and track records is of focus, while aligning capital expenditure programmes and management incentives on medium-term climate objectives.”