The Future of Climate Investing

At a recent Nasdaq webinar on the future of climate investing, three leading analysts, including Nasdaq’s European Data Product Development lead, Alexander Free, discussed the current state of climate investing, data’s role in the evolving landscape and how to hold institutional investors and companies accountable for their ambitious climate agendas.

Panelists largely agreed that climate investing has grown exponentially in the last 10 years but still has more to accomplish.

Ian Stannard, Head of Marketing and Engagement at Urgentem, and Free discussed the current focus of financial firms on climate risk and resilience when deciding where to invest. Climate risk and resilience are largely modeled by insurance companies, looking at how a company’s assets may be affected by rising sea levels, extreme heat, increasing natural disasters and other future climate events as climate change worsens.

Free acknowledged that while these efforts are important and worthwhile, there needs to be more focus on decarbonization.

“Acknowledging climate risk is a critical first step, but what really matters is how investors are going to use their money to drive the transition to a more sustainable planet,” said Free.

Fortunately, in the past year, investors have started focusing more on decarbonization and offsets, according to Free. With Nasdaq recently acquiring a majority stake in Puro.earth, the world's first marketplace to offer industrial carbon removal instruments, the cumulative committed trade value of CO2 Removal Certificates (CORCs) grew five times in one year.

This increase is a major development for the evolving ESG market. While ESG funds are at all-time highs, increasing by 50% this year to $2.7 trillion, even more investment is needed. It is estimated that $15 trillion a year must be put toward green technologies to meet net-zero emissions.

Lise Pretorius, Head of Sustainability Analysis at Matter, agreed with Free. She cited the massive growth of ESG initiatives as a great achievement but was wary of the lack of democratized data that can clearly define certain ESG investments as sustainable.

She argued that because there is no standardized definition for sustainable investment, it is harder to determine which ESG initiatives are causing a net change for the good.

“[Right now] ESG is basically a box of chocolates; you don’t know what you are going to get,” said Pretorius.

As climate data becomes more democratized, it will provide a better understanding of which ESG initiatives aid progress toward a net-zero world. Stannard cited the rise in companies releasing their emissions data as a step in the right direction, largely brought about by new regulations and shareholder pressure. According to Stannard, there has been a 15% increase in publicly disclosed emissions data and a 40% increase in companies showing higher quality emissions data.

Pretorius echoed Stannard and pushed further, citing new efforts to collect data from multiple stakeholders. These include non-governmental organizations (NGOs), think tanks and others that combine diverse insights to produce a clearer picture of a company’s role in climate impact.

Amalgamation and democratization of data is the key to holding companies and financial service firms accountable for their ambitious climate investing goals, the panel agreed.

“The 2025-2030 period will be really exciting because the decarbonization of these portfolios will have to accelerate to maintain their alignment to a net-zero scenario,” said Stannard.

Pretorius and Free agreed and claimed investors will expect even more from companies than mere divestment from non-renewable assets.

“They need to showcase they are having a positive impact on the climate as well,” said Free.

Beyond divestment, “emissions can be reduced by funding greener companies on public and private markets, but also on fixed income markets, sustainable bonds, green bonds, etc.” said Free.

In fact, sustainable bonds are a great way for investors to expose themselves to positive climate impact while helping companies raise capital for green initiatives, according to Free.

Nasdaq is home to the first and largest Sustainable Bond Market, which allows enterprises to raise debt capital with various eco-friendly deliverables. Companies that fail to fulfill their bond agreement are held accountable by having to pay back investors with additional interest.

Since its inception, the bond market has seen a wide range of participation, including the city of Helsingborg, Sweden, which listed a sustainability-linked bond as part of its efforts to reach net-zero emissions by 2035.

To match the increasing interest in ESG investments Nasdaq released our Sustainable Bond Network, a platform that connects issuers of sustainable bonds with investors, empowering them to evaluate impact and make informed investment decisions on sustainable bonds.

While there is still a long way to go to meet the Paris agreement, Free ended the panel with a simple blueprint to reach it.

“Clients need to vote with their money. Give money to those doing good, take money from those doing bad—that will ultimately drive the transition to a more sustainable global economy,” Free said.