Ruth Bryson, Chair of the IFoA’s Net Zero and the Implications for Investment Portfolios Working Party, introduces the working party’s new paper which explores how the biggest global emitters are investing to finance the green transition.
We are pleased to publish our latest paper Global net zero: How countries with the largest emissions are investing to finance the transition. It provides an introduction to the markets for sustainable and green investments around the world, including case studies.
Countries with the largest greenhouse gas emissions have a significant role to play in the transition and have active green finance markets. Sustainable and green finance products have existed for several decades but markets for such products have grown significantly since the Paris Agreement was signed in 2015.
This is because signatory countries need to raise significant levels of finance to support progress against their net zero commitments. During the time we have worked on this paper there has been increasing geopolitical uncertainty. However, green investment markets continue to grow, particularly with countries around the world investing in renewable energy infrastructure.
It is important for actuaries to learn about global green investment markets so that they can help pension schemes and insurers to support a net zero transition and climate adaption through a globally-diversified investment portfolio. Actuaries can also apply overseas innovation to domestic investment markets.
We look at key types of green investments and market participants, including case studies. Global climate finance hit an all-time high of USD $1.9 trillion in 2023. Green investment markets continue to grow, although at a slower rate than in previous years. Cuts to government budgets mean that private investments are now playing a bigger role in green market growth.
Much attention has been given to the UK and EU green investment markets in recent years as they have adopted more rigorous standards for green investment. However, since the UK and EU make up only one part of the world economy, our focus on the countries outside of the UK and EU, covering a sample of high-greenhouse gas emitting countries across different world regions.
China is the largest market, but active markets exist in other regions, including in Latin America. Despite stepping back from climate-related initiatives, the USA remains a significant market, although the longer-term implications are unclear.
Green investment markets are not just influenced by supply and demand, but by the political environment, regulations and public sentiment. This means that actuaries can influence the development of markets by engaging with policymakers to shape a supportive policy environment for green investment and by engaging with the companies they invest in.
Actuaries can challenge and validate sustainability reporting on green investments, including transition plans, and the companies that issue them. We can also help to develop frameworks for measuring the financial impact of climate-related risks, such as the work of the IFoA and the University of Exeter in the Planetary Solvency series.
The Net Zero and Implications for Investment Portfolios Working Party aims to help actuaries improve their understanding of what net zero means for an investment portfolio and what the key mechanisms are to achieve this, as well as key challenges to date and the outlook for development.
