London Climate Action Week: Takeaways for Investors

A finance-led transition to net-zero by 2050 may be out of reach, but innovations in measurement increasingly enable investors to deploy capital that protects against the effects of a warming world while advancing a cleaner, more resilient global economy. Those were some themes from London Climate Action Week. 

My colleagues and I took part in a series of conversations covering everything from climate resilience and capital flows to carbon markets, and helped mark the launch of MSCI’s Energy Transition Framework, which is designed to help investors assess transition risk and opportunity company by company and location by location. Here are some of the takeaways from the week that stood out for us.

• “It’s not lost on us that when we’re investing in wind and solar we need to take into account the impact of climate change on those energy infrastructure projects,” commented Tom Woolerton, senior investment manager at Octopus Energy Generation, at a de-risking summit hosted by the insurance broker Howden, where participants stressed a need for quantifying climate-related physical risk in insurance appraisals.  
• “We believe that geospatial asset intelligence is the next risk frontier,” my colleague Richard Mattison, MSCI’s head of sustainability and climate, said at a reception hosted by our firm. Investment institutions “examine risk in a systematic way but that doesn’t capture location-, jurisdiction- and postal-code-specific risks,” he observed, adding that risks from physical climate impacts, trade and tariffs, “all compound at the local level.”

• “Currently about 40% of our portfolio” is invested in the U.S. said another asset owner. “Barring a change that affects the trade relationship, we see a similar ratio even as we increase our investments in decarbonization.”
• A rapid rise in the amount of capital allocated to clean technologies in Asia reflects “a recognition that such investments are no longer seen as climate projects but just good returns,” commented one consultant.

Fragmentation and political headwinds were key topics in a panel moderated by Peter Tufano, Baker Foundation Professor at Harvard Business School, during a UN Goals House event hosted by the Harvard Salata Institute. Panelists Nili Gilbert, vice-chair of Carbon Direct; former U.K. energy minister Chris Skidmore; and David Blood of Generation Investment Management broadly agreed that, beyond the headlines, climate action continues on the ground but is not well communicated. The economic case for decarbonization needs better storytelling and fewer frameworks and acronyms, they suggested.

Conversations centered on opportunities for investment created by the need for adaptation and resilience to climate change, as well as the critical role of insurance in incentivizing such investments.

• “You have more certainty and conviction about the direction and risk of the impact of climate change over the next 15 years than you do the direction or range of interest rates, inflation, tariffs or geopolitics,” noted Jay Koh, co-founder and managing director of The Lightsmith Group and co-founder of the Global Adaptation and Resilience Investor (GARI) working group, at a roundtable on de-risking investment in climate adaptation and resilience hosted by GARI, Zurich Insurance and the advisory firm Pollination.
• “A majority of pension funds are at the beginning of the journey when it comes to adaptation and resilience,” reported Valentina Ramirez, head of climate strategy for the Institutional Investors Group on Climate Change (IIGCC), noting that IIGCC just launched a climate-resilience investment framework and a consultation on its physical climate risk appraisal methodology.
• Anjali Viswamohanan, director of policy for the Asia Investor Group on Climate Change (AIGCC), cited Asia’s vulnerability to heat stress and AIGCC’s work with the MSCI Sustainability Institute to identify companies domiciled in the region whose products or solutions may help society prevent or withstand the impacts of extreme heat. “If you invest in resilience, it actually creates resilience,” she stressed.
• “The reality is that it’s quite difficult to see immediate impact from resilience measures, so we’re trying to think in terms of timing,” noted Penny Seach, chief underwriting officer at Zurich Insurance Group. “Insurers think in 12-month chunks, whereas investors think in terms of the life of an investment,” she added. “We need to change the mindset from repair and replace, which is easy for the insurance industry, to a model of predict and protect.”

Both carbon trading and blended finance (combining government or philanthropic capital with private capital in one financing structure) as a means to attract private sector investment in the energy transition in emerging markets featured prominently in London.

The governments of Kenya, Singapore and the U.K. announced the formation of The Coalition to Grow Carbon Markets, which aims to strengthen the integrity of credits and promote their use by companies in meeting emissions targets to increase the flow of private-sector finance for climate, nature and a just transition.

• Ravi Menon, co-chair of the new coalition, Singapore’s ambassador for climate action and former director of the Monetary Authority of Singapore, stressed the value of carbon trading in climate finance in his opening remarks on the record at our Institute roundtable, calling it “key for decarbonization in the Global South.”
• “Carbon removals are generating interest from buyers,” commented a participant at our Institute’s roundtable, citing continuing purchases of removals by U.S. tech giants and the trend by governments to link voluntary and compliance markets by permitting, as Singapore does, the use of high-quality carbon credits to offset a portion of their taxable emissions.
• Blended finance plays a role in financing adaptation and resilience, emphasized Andrew Lucas, head of energy, climate and environment at the U.K. government’s Foreign, Commonwealth & Development Office at the GARI roundtable. Developing local financial centers can help to attract private-sector investment for adaptation and resilience in emerging markets by reassuring investors. “Local capital is stickier and leads to international funding,” he said.
• Outcomes of the COP30 climate summit should include an adaptation roadmap that makes private-sector investors “feel safer, whether via a high-quality carbon offset, or helping the private sector invest more in emerging markets because they can actually quantify the real risk,” suggested Rachel Kyte, the U.K. government’s special representative for climate.

Many of the issues discussed in London, including private-sector investment in the energy transition and the role of carbon trading in spurring private-sector climate finance, as well as the importance of nature-related risks are likely to be high on the agenda at the U.N. COP30 climate summit later this year.  

“Mainstreaming climate in investments and insurance,” “harmonization of carbon markets and carbon accounting standards” and protecting nature with “solutions for climate, biodiversity and desertification” are among 30 objectives for the summit published by the COP30 presidency on the eve of London Climate Action Week.¹