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Week in Impact: Discord in Davos?

Does BlackRock's watershed CEO letter suggest the finance industry is finally taking climate risk seriously?

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🌍 The 50th annual World Economic Forum at Davos kicked off on Tuesday, the theme 'stakeholders for a cohesive and sustainable world'.

🖥️ Microsoft announced a landmark plan to become carbon negative by 2030, remove historical emissions by 2050 and launch a $1bn climate innovation fund.

📊 The GIIN released its second Impact Measurement & Management report, with a number of crucial developments. Follow us on LinkedIn for a full review this week.

🏛️ Boris Johnson appointed outgoing Bank of England Governor Mark Carney as his finance adviser for the COP26 UN climate change conference in Glasgow.

🚀 Refinitiv launched the Future of Sustainable Data Alliance, which aims to provide investors with the data they need to channel capital towards sustainable finance...

♻️ ... while MSCI released its Principles of Sustainable Investing: a framework that lays out ways in which ESG can be fully integrated into the investment process.

🔮 Quant funds: the next victim of climate change? UBS warns the "unpredictable" direction of the low-carbon market transition could undermine algorithmic strategies.

Discord in Davos

This week, politicians and business leaders descended on Davos for the 50th annual World Economic Forum (WEF). There, they will ski, schmooze, and set the world to rights.

The stakes are high.

Last week, the WEF released its annual Global Risks Report. For the first time, environmental concerns accounted for all of the report’s top five long-term risks. Unless emissions fall to zero by 2050, it warns, “climate and corresponding economic risks threaten a 2008-style systemic collapse.” Reaching net-zero requires “interconnected economic and social transitions,” in turn depending on “technological innovation and commitment from governments and businesses.”

Is that something Davos delegates can deliver by Friday? Don’t count on it. The report cheerfully concludes that companies are “ill-equipped” to address climate risk, commitments “inadequate,” and current trends “not encouraging.”

But the seeds are being planted.  

By the time of its publication, the Global Risks Report’s handful of “vanguard first-mover champions” was already growing, with Microsoft and BlackRock launching landmark environmental plans. The Big Four accounting groups and some of the world’s largest companies today signed up to a new standardised environmental disclosure scheme: “the most comprehensive effort yet” to account for businesses social and environmental impact.

The action won’t end there, not even among the most Friedmanite businesses. That's because they can’t afford to sit back.

According to the FT, a new report from Refinitiv is “setting off alarm bells” in Davos. The report finds that a $75-per-tonne global carbon tax—the level IMF officials have told Davos delegates is needed to keep global warming under 2C—would total $4 trillion. For some companies, that could mean a hit to revenue of as much as 13%.

While the COP25 summit failed to deliver a global standard on carbon taxes, it’s only a matter of time before one emerges. And, despite a slew of recent pledges, "the vast majority of companies are woefully unprepared.” It’s a cost they simply haven't factored in. They will need to.

Davos has been pitched as a showdown between the environmental activism of Greta Thunberg and the bombastic pro-capitalism of Donald Trump. In reality, however, the future hovers somewhere in between. Chief executives can’t, as Trump asked in his opening speech “reject the perennial prophets of doom.” But nor are they likely to heed Thunberg’s directive that “emissions have to stop."

Chief executives will take decisive action on climate change when financial cost and climate risk dovetail. As of 2020, they have several trillion reasons to care.