Pale Blue Dot

Trade battle lines deepen. ‘ESG integration’ axed. Net-zero insurers blink. Plus, can we save SDG 6 from drowning?

In the world

🇺🇸 Seeking to reduce dependencies on China and Russia while avoiding a trade war, the US and EU are collaborating on an emissions-reduction agreement. Bloomberg reports fault lines are emerging, however, with the US accused of being too protectionist and the EU as too strict. Canada, meanwhile, warns the US Inflation Reduction Act risks igniting a “subsidy war.”

🇪🇺 Sustainable flows rebounded in 2023 after a challenging 2022, according to Reuters, but the FT reports regulatory scrutiny is slowing fund development. Industry benchmarks, too, are changing to reflect stricter product parameters. Following MSCI’s sweeping downgrades, it emerged Eurosif will axe vaguely defined ‘ESG integration’ funds from its market universe.

🇪🇺 European insurers may soon be expected to manage nature-related risks. In a paper published last week, the EU insurance regulator unveiled plans to establish industry-wide supervisory expectations to better assure financial stability. Plus, the UN Environmental Programme just published the results of its TNFD pilot run.

🗺️ It’s been a tough week for the Net Zero Insurance Alliance (NZIA). Citing antitrust concerns, Munich Re defected and — just a couple of days later — was followed by Zurich Insurance Group. The group has faced mounting pressure to decarbonise. 

In the spotlight: Pale blue dot

Last month, the UN held the 2023 Water Conference against a backdrop of unprecedented water-related crises, including intensifying floods and droughts coupled with dwindling freshwater supplies.

The central outcome of the conference was the newly adopted international Water Action Agenda, which collected hundreds of voluntary public- and private-sector commitments to secure water security in line with the principles of SDG 6: Clean water and sanitation for all.

According to WaterAid, annual investment must triple to at least $200B to meet the terms of SDG 6 by 2030. Can the Water Action Agenda catalyse the capital flows needed to close the gap? The initial response appears to be ‘no’ — but that doesn’t mean investors can’t.

Overdue scrutiny on an overlooked crisis

Water as a human resource is scarce. UN data show that one quarter of the world’s population lacks access, with scarcity the leading cause behind 10% of global migration. Stress will only get worse as the global population rises. 

  • Goldman Sachs anticipates water demand will outstrip supply by 25% in the next three decades;
  • Morgan Stanley puts the figure closer to 40% by 2030;
  • And the CDP warns that the risk is dangerously underpriced by investors. 

Despite having caused 75% of recent disasters, water-related events were identified as a portfolio risk by just 18% of institutions in 2022. This isn’t ‘just’ a problem for human consumption. Dwindling supply is both exacerbated by and exacerbates challenges in water-intensive industries, such as mining and agriculture: both of which are crucial to staving off climate and hunger crises, respectively. 

Most net-zero action is aimed at improving and protecting (action on) land. But there’s a reason the two most famous photos of Earth are called the Blue Marble and the Pale Blue Dot. This is a water-dominated planet, and yet both water-related SDGs remain critically underfunded.

Forget seeing the forest for the trees; we’ve been failing to see the world for the forest. 

Fortunately, there are signs the tide is beginning to turn.

The good news

To date, the trouble with blue investments has been that the investment landscape doesn’t, on the face of it, offer much breadth or excitement. 

That’s changing. In the aftermath of Water Action Agenda disappointment, the FT reports that private-sector investors are beginning to pour into the gap. Though it accounts for just a fraction of the billions pumped into climate tech, technology catering to water management, access and security is growing. 

Though it won’t happen overnight, the FT observes that it’s only a matter of time until powerful demand tailwinds — and increasingly sophisticated infrastructure — attract the attention of the wider financial industry. 

In the meantime, asset managers may be wondering how they can capture the opportunities presented by an industry that remains fiendishly sparse. This is where sustainability data that maps to the SDGs – including SDG 6– can be valuable. 

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