Responsible Investing—The World Tour

A reprinted article from January/February 2020

By Michael Lewis and Robert Bush

Responsible Investing—The World Tour

By Michael Lewis and Robert Bush

nvironmental, social, and Japan and Australia/New Zealand post- 2014 it has fallen 10 percentage points governance (ESG) activity is ing the fastest growth over this period. to 48.8 percent. GSIA assigns this Eevolving around the world at This has meant that the concentration of declining trend to stricter definitions as an accelerating pace. In this article, ESG assets held in Europe and the United to how to classify ESG assets. we will investigate the instigators of States combined has moderated some- change—from investors, businesses, what, from 94 percent to 85 percent of As part of effort by the European Union governments, regulators, supervisors, ESG assets globally. (EU) to improve the trust and integrity and civil society—to better understand of the sustainable finance market, we the geographic differences as well as Third, ESG investment styles are expect ESG definitions and standards to trends in the rate of change. dominated by just three strategies: become even stricter, with potential (1) exclusion screens, (2) ESG integra- implications for Europe and further INVESTMENT STYLES AND tion, and (3) corporate engagement and afield if the taxonomy of the EU action GEOGRAPHIC BIAS shareholder action (see figure ).1 This is plan for financing sustainable growth Earlier this year, the Global Sustainable as true today as it was eight years ago. (EU Action Plan) becomes a template for Investment Alliance (GSIA) published other regions.3 its biennial report examining sustainable Fourth, regional biases continue to investment trends around the world.1 persist, with exclusion screens the most GREEN CREDENTIALS The GSIA pools ESG data from regional dominant strategy in Europe, ESG AROUND THE WORLD organizations that enables a comparison integration most prevalent in the United Green credentials vary significantly of ESG assets by region and investment States, and corporate engagement the among financial centers around the style. The GSIA published its first report preferred strategy in Japan, a reflection world. One of the most comprehensive in 2012, providing for some interesting of the importance of Japan’s Stewardship surveys ranking international financial observations. Code.2 centers based on the depth and quality of their green financing activities is con- First, when the inaugural report was Fifth, although sustainability themed ducted by Finance Watch in its Global published eight years ago, the GSIA sur- and impact investing styles continue to Green Finance Index.4 The objective is vey reported on ESG assets across seven show strong growth, volumes remain to assess the penetration of green regions compared to just five today. This trivial relative to other investment styles. finance in a financial center’s overall may reflect the challenges of gathering Moreover, assets in both strategies are financial activities (depth) as well as to robust ESG data for emerging markets. predominantly concentrated in the rate a financial center independently Today, GSIA reports on ESG assets in United States. from its market volumes (quality). Africa separately and via the African Investing for Impact Barometer, which Sixth, the proportion of ESG assets rela- The survey attempts to assess the reveals ESG assets are concentrated in tive to managed assets has grown across degree to which green finance makes up the Republic of South Africa (93 percent) all regions since 2012. The most dra- a significant proportion of the financial with the regions of West Africa matic increase has occurred in Australia center’s activity, or whether the scale (4 percent) and East Africa (2 percent) and New Zealand, where the share has and scope of green finance is limited making up the majority of the balance. leapt from less than 15 percent to and eclipsed by a larger amount of GSIA has just begun to track sustainable 63.2 percent (see figure ).2 Meanwhile in “brown activities” such as fossil fuel investing trends in Latin America. the United States, the ratio has more financing. Consequently, having a than doubled from 11 percent to robust audit of the green and brown Second, since 2012 the size of ESG assets 25.7 percent. Notably, the proportion of financing activities across global finan- in the five key regions has increased by ESG assets relative to total managed cial centers provides a useful assessment 130 percent, with the smaller regions of assets has declined in Europe; since of the risks and opportunities these

48 INVESTMENTS & WEALTH MONITOR

cities may face in the transition to a Figure ESG ASSETS BY STRATEGY AND REGION 2018 (USD TRILLION) low-carbon economy. For example, in 1 the event that technology, regulation, E and carbon pricing schemes trigger a E downward revaluation of fossil fuel assets, those stock exchanges with a dis- E proportionate share of such company N E listings would be particularly exposed. B In its most recent edition published in N March 2019, the Global Green Finance B Index examined 63 financial centers 0 2 20 around the world. It revealed significant ■ urope ■ nited tates ■ apan ■ anada ■ Australiaew ealand divergence in green finance activity, with European cities leading and many Source: GSIA (April 2019). Global Sustainable0 Investment Review 2018 2 20 Asian centers lagging (see figure ).3 0 2 Within the European universe, ■ urope ■ nited tates ■ apan ■ anada ■ Australiaew ealand 0PROPORTION OF ESG ASSETS RELATIVE TO TOTAL MANAGED Amsterdam ranks top overall, but Figure 2 ASSETS 0 London leads when ranked solely on 0 0 green finance quality. North American 0 2 2 centers are typically middle ranking, 0 with San Francisco and Montreal ranked 0 0 0 top in their respective countries, and 20 New York on a par with Tokyo. 0 2 0 0 Other Asian centers are divided between 0 middle ranking centers and laggards. 20 A/ E U J N For example, Sydney and Melbourne are 0 competing strongly with Shanghai, 0 Beijing, and Singapore, while Mumbai, A/ E U J Bangkok, and Kuala Lumpur are ranked N at the bottom of the list on both depth and quality. Source: GSIA (April 2019). Global Sustainable Investment Review 2018

Between 1970 and 2015, approximately Figure GREEN FINANCE RANKINGS BY DEPTH AND QUALITY AROUND 2,250 unique studies have examined 3 THE WORLD the link between ESG and corporate financial performance (CFP).5 The most 00 Amsterdam compelling result from this DWS- University of Hamburg analysis is the hanghai dne urih ondon strong correlation between ESG and 0 eiing CFP in the group of emerging market ranurt studies. The results revealed that, where there was a regional identifier, 00 ong ong aris 65.4 percent of studies showed a 0 an raniso positive link between ESG and CFP, uala umpur 2 epth inane reen significantly higher than in developed 0 ingapore 0 markets (see figure4 ). 2 ew or 00 ango oo 2 The more compelling results for emerg- 0 Istanul 00 umai 0 ing markets corresponds well with 00 20 0 0 0 00 20 0 0 0 00 00 2 survey evidence published by the United N E E A/A/reen inane ualitA Nations-supported Principles for 0 N Responsible Investment (PRI), which Source: Global Green Finance Index 3 (March 2019) 0 ■ ■ N N E E A/A/ INVESTMENTS A & WEALTH MONITOR 49 00 N ■ ■ N 0 © 2020 Investments & Wealth Institute. Reprinted with permission. All rights reserved. © 2020 Investments & Wealth00 Institute. Reprinted with permission. All rights reserved. 2 00 00 200 0 00 2 0 2 00 2 00 0 200 0 2

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JANUARY 0 FEBRUARY FEATURE0 | Responsible Investing—The World Tour 2020 0 0 2 2 0 0 found that retail investors in emerging0 U.S. INVESTORS, CORPORATIONS, In terms of corporate commitments to 0 markets20 such as Brazil and South Africa AND STATES ARE IMPORTANT renewable electricity, corporations based appeared0 to be more engaged on ESG ROLE MODELS2 in Anglo-Saxon countries lead the world 0 issues than their counterparts in the When it comes to the adoption of (see figure ).6 This is highlighted by the 0 developed0 world.6 key ESG initiatives, the United States RE100 initiative, which brings together A/ E U J 20 plays a crucial role. For example, the major companies committed to sourcing N The PRI0 survey polled workers in the United States has the largest combined 100-percent renewable electricity glob- United States, United Kingdom, France, number of asset owner and asset ally in the shortest possible time span, Australia,0 South Africa, and Brazil who manager signatories to the PRI (see by 2050 at the latest. We find that the A/ E U J 7 are investingN for retirement. It revealed figure ).5 One of the obligations of RE100 initiative is dominated by compa- that respondents in emerging market a PRI signatory includes the incorpor– nies headquartered in the United States, countries often had the highest levels of ation of ESG issues into the investment followed by the United Kingdom. concern when it came to key ESG issues process; beginning in 2020, it will Combined, these two countries make up such as the burning of fossil fuels, the use become mandatory for PRI signatories just more than 50 percent of RE100 cor- of child labor, excessive chief executive to report how they have considered porate signatories, which in July 2019 officer remuneration, and corporations specific climate risks in their invest- totaled 190. Altogether, these compa- that made use of tax loopholes. ment portfolios.8 nies are creating demand for more than 188 TWH (terawatt hours) of renewable energy every year—almost enough to Figure EMERGING MARKETS POST THE STRONGEST POSITIVE LINK power a country like Thailand with a 4 BETWEEN ESG AND CORPORATE FINANCIAL PERFORMANCE population close to 70 million.9 Research conducted by The Climate 0 Group reveals a direct correlation 2 between companies signed up for RE100 0 and those companies achieving above- 0 2 average financial performance as 0 measured by net profit margin and earn- 0 2 ings before interest and taxes margin.10 0 This outperformance is irrespective of 0 2 0 N E the sector in which the company oper- E A/A/ A N ates. From our perspective, this means 0 that RE100 companies are typically ■ ■ N 0 leaders in their sectors. Interestingly, Source: DWS-Global Research Institute white paper (December 2015). ESG and CorporateN Financial PerformanceE a survey conducted by the Climate E A/A/ A 00 N Group and CDP in 2018 revealed that 0 88 percent of RE100 members cited the Figure 00THE UNITED STATES LEADS■ WHEN ■ N IT COMES TO THE NUMBER 2 5 OF ASSET OWNER AND MANAGER PRI SIGNATORIES economic case as a key driver for joining 00 RE100.11 A reflection of the rapid 00 200 decline in renewable power prices over 0 00 0 2 recent years suggests that an increasing 00 2 2 number of companies may be making 00 0 renewable commitments in the years 200 ahead. pain apan 0 2 rane

anada 00 2 weden Australia erman Another factor bringing ESG—and spe- witerland outh Aria etherlands uemourg

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outh Aria etherlands uemourg 0 tates nited change action. Research by Clyde & Co., nited ingdom nited 0 ■ A ■ the global law firm, revealed that to date 0 1,200 climate change cases have been 0 Source:0 PRI signatory database (August 2019) filed across 30 jurisdictions including 0 20 20 0 0 0 50 INVESTMENTS0 & WEALTH MONITOR 2 2 2 2 2 0 0

20 © 2020 Investments & Wealth Institute. Reprinted with permission.Ital All rights reserved. India pain ther 20 hina apan rane aiwan inland orwa 0 weden elgium Australia erman 0 enmar 2 2 2 2 2 witerland

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FEATURE | Responsible Investinganada —The World Tour FEBRUARY weden Australia erman 0 2 2020 00 2 witerland outh Aria etherlands uemourg nited tates nited

0 ingdom nited Australia, the United Kingdom, New Figure THE UNITED STATES■ A DOMINATES ■ WHEN IT COMES TO THE 6 NUMBER OF COMPANIES SIGNED UP FOR THE RE100 INITIATIVE

Zealand, Brazil, Spain, Canada, and pain apan

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Figure CLIMATE EVENTSwiterland AND FINANCIAL LOSS IN THE UNITED STATES etherlands

nited tates nited 20 event attribution. This assesses the 7 (1988–2018)2 nited ingdom nited degree to which an extreme weather Billion-dollar0 disaster event types by year (CPI-adjusted) 200 event is attributable to climate change, 00 natural weather patterns, or random cli- 0000 mate variability. In the event that the N E 020 science behind extreme event attribution 22 B proves more reliable, we would expect 00 0200 greater litigation risk around climate. 0

0 2 2000 2002 200 200 200 200 202 20 20 20 00 In addition to litigation risk, there is N E ■ rought ■ evere torm ■ Winter torm ■ looding ■ 0 2■ ropial lone ■ reee ■ Wildire stimated ost considerable focus on the financial loss B triggered by extreme weather events in 0 0 the United States such as hurricanes, 0 2 2000 2002 200 200 200 200 202 20 20 20 floods, and wildfires (seefigure ).7 Between 1980 and October 2019, 254 ■ roughtF ■ evere torm ■ Winter torm ■ looding ■ ropial lone ■ reee ■ Wildire ■ stimated ost weather and climate disasters have hit U the country with a cumulative loss in Source: NOAA National Center for Environmental Information (NCEI) U.S. Billion-dollar weather and climate disasters (2019). excess of $1.7 trillion.13 Hurricanes remain the most damaging and costly and 500-year flood events as well as a Between 1998 and 2017, five of the A weather events to affect the United 50-year drought.F16 Since the Mississippi world’s 10 countries most affected U R States: Between 2016 and 2018, the River transports 40 percent of U.S. total by extreme weather events were in R United States was impacted by six sepa- agricultural output and the river crosses Asia, namely Myanmar, Philippines, rate billion-dollar hurricanes incurring through 10N U.S. states, it is no wonder Bangladesh, Pakistan, and Vietnam. total losses of $329.9 billion and 3,318 this has triggeredA the Mississippi0 River20 The0 primary0 risks across0 this region00

fatalities.14 In 2018, California also Cities and TownsR Initiative (MRCTI).17 ranged from typhoons, droughts, sea experienced its costliest, deadliest, and Since 2012, MRCTI’s R work aims to pro- level rise, and coastal flooding.19 The largest wildfires since records began in tect and restore the Mississippi River as majority of the other most-affected Asiaaii uropeiddle astAria orth Ameria 1933. In total, more than 8.7 million well as buildN resilience for the 124 cities countries were in the Americas and 0 20 0 0 0 00 acres burned across the United States in and towns200 whose welfare is directly0 included Puerto 00Rico, Honduras, Haiti, 2018, well above the 10-year average of linked to the river. and Nicaragua. Because Asia’s popula- 15 6.8 million. 00 tion is increasingly200 urbanized and Asia, Central America, and Europe also coastal, flood losses are likely to inten- 00 Asiaaii uropeiddle astAria orth Ameria Floods also have caused significant dis- are exposed to financial losses triggered sify in the years ahead, specifically in the 0 00 ruption across the country. For example, by extreme200 weather events. In Asia,0 high population 00centers of Guangzhou, since 1993, the Mississippi River Valley five out of six people live in an area Mumbai, Kolkata, Shenzhen, Jakarta, 0 0 0 has sustained successive 100-, 200-, vulnerable to extreme weather events.00 18 Bangkok, and Nagoya.200 20 A B E F A B E F A B E F 00 0 00 INVESTMENTS & WEALTH MONITOR 51

© 2020 Investments & Wealth Institute. Reprinted with permission. All rights reserved. © 2020 Investments & Wealth0 Institute. Reprinted with permission.0 All rights reserved. 0 A B E F A B E F A B E F E E N B

0 2 20

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JANUARY FEBRUARY FEATURE | Responsible Investing—The World Tour 2020 00 0 00 2 In Europe,00 the highest overall economic best practices, for example in the area of industry. The origins of greenwashing losses in absolute terms from extreme climate risk management in the financial date to the 1980s when certain corpora- weather200 and climate-related events sector.23 In April 2019, the NGFS pub- tions overstated or even falsely claimed 2 0 between00 1980 and2 2017 were registered lished its first assessment report their positive environmental credentials, in Germany, Italy, and France (see including a call for action for central typically in marketing campaigns. 0 figure ).8 21 The most-expensive climate banks and supervisors to ensure the

extremes over this period were the 2002 financial system is resilient to climate In response, many jurisdictions, such as pain apan rane anada flood in Central Europe, the 2003 risksweden and to promote a more sustainable the United States and United Kingdom, Australia erman

drought and heat wave, the 1999 winter witerland financial system. The NGFS’s recom- have attempted to tighten advertising outh Aria etherlands uemourg storms Lothar and Martin, and the mendations included integrating tates nited standards around such activities through nited ingdom nited October 2000 floods in■ ItalyA and France. ■ climate -related risks into prudential the Federal Trade Commission and

However,0 when financial losses are supervision as well as central banks the Advertising Standards Authority, assessed as a share of gross domestic integrating sustainability factors into respectively. The effort to stamp out 0 product, Croatia, Czech Republic, and their own portfolio management such greenwashing in Europe is being driven 0 Hungary were the most impacted. as pension funds and reserves. by a unified EU classification system for 0 whether an economic activity qualifies as 0 Not surprisingly,20 climate risk measure- GLOBAL INITIATIVES TO environmentally sustainable for invest- 20 ment and management0 have prompted ENHANCE THE INTEGRITY OF ESG ment purposes. This taxonomy will be 0 global regulators and supervisors to act. The EU Action 2 Plan2 goes2 2beyond2 mere used by regulators at a national and EU Since 2010,0 a growing number of U.S. recommendations for powerful legisla- level, e.g., in labeling schemes and for

state insurance regulators are including tive action that aims for the EU Ital to meet verifying claims that financial products India pain ther hina apan rane aiwan inland

climate risk assessments into their regu- its climate and energyorwa commitments are environmentally sustainable. This weden elgium Australia erman latory reviews. This effort has been enmar under the 2015 Paris climate agree- will apply to all entities—whether EU witerland etherlands supported by tates nited the National Association ment.24 It calls for moving sustainability based or not—operating and selling of Insurance Commissioners ingdom nited (NAIC). into the core activities of financial insti- investment products in Europe. Today, the NAIC surveys in excess of tutions operating in the EU,0 many of 1,000 companies that write more than which will be required to 00demonstrate Improved disclosure is also essential. We $100 million in premium capturing how they integrate ESG factors into their applaud the plan to require institutional 20 more than2 70 percent of the entire U.S. investment processes. asset managers to show exactly how their insurance0 market.22 200 investments are aligned with their stated One of the most urgent tasks0 is a robust sustainability objectives. Indeed, we At a global level the Network for classification and labeling system to hope the EU Action Plan will encourage 00 GreeningN E the Financial System (NGFS) bring much needed consistency and greater clarity on the duties of all inves- 0 has moved2 beyond its eight founding trust to the market. So-called green- tors as they relate to ESG factors. We B member central0 banks to encompass washing is a growing problem0 that believe this in turn should drive efforts to 42 members and eight observers sharing potentially undermines the whole integrate ESG into investment processes. 0 2 2000 2002 200 200 200 200 202 20 20 20 As a result, investors may benefit from a ■ rought ■ evere torm ■ Winter torm ■ looding more-liquid pool of sustainable products Figure ECONOMIC■ ropial loneLOSSES ■ INreee EUROPE ■ Wildire FROM ■ stimated WEATHER ost AND CLIMATE- 8 RELATED EVENTS (1980–2017), IN EUR BILLION and the increased pressure on companies to improve their sustainability reporting. Indeed, woeful levels of ESG-related information, particularly around climate F risks, and ESG ratings based on incom- U plete or poor corporate disclosure pose a real risk for investors. This is one of the key objectives of the Task Force on 25 A Climate-related Financial Disclosures. R R Even so, challenges for investors to iden- tify climate risks as well as broader ESG N controversies remain. ESG disclosure 0 20 0 0 0 00 has come under fire because companies

Source: NatCatSERVICE, Munich Re; European Environment Agency (April 2019). Economic losses from climate-related typically tend to report only on issues extremes in Europe. that paint them in a good light, but with Asiaaii uropeiddle astAria orth Ameria

52200 INVESTMENTS & WEALTH0 MONITOR 00

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0 2 20

■ urope ■ nited tates ■ apan ■ anada ■ Australiaew ealand

0 2 0 0 0

0 2

0 20

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0 00 20 2 0 200 0 00 N E 0 2 B 0 0 0 2 2000 2002 200 200 200 200 202 20 20 20

■ rought ■ evere torm ■ Winter torm ■ looding ■ ropial lone ■ reee ■ Wildire ■ stimated ost

F U A R R JANUARY FEATURE | Responsible Investing—The World Tour FEBRUARY N 2020 0 20 0 0 0 00

little to no financial materiality. This is Figure ESG RATINGS DISTRIBUTION BY MSCI REGION (NUMBER OF borne out by 2018 research that reveals 9 CORPORATIONS) ESG disclosure has a weak correlation to Asiaaii uropeiddle astAria orth Ameria financial performance and introduces hazards for investors because ESG dis- 200 0 00 closure plays an important role in driving ESG ratings. As we have high- 00 200 lighted in the past, increasing the ESG 00 quality of a portfolio simply may deliver 0 00 a portfolio with a bias toward large market cap securities or be overly exposed 0 0 0 to European securities, reflecting the A B E F A B E F A B E F uneven nature of ESG disclosure information by region (see figure ).9 26 Source: DWS Investment GmbH (April 2018).

Such concerns were highlighted by U.S. Securities and Exchange Commissioner efficiency (blue tech), and electric vehi- sectors—for example, smart meters Hester Peirce in June 2019. Efforts to cles increasingly are viable due to are being installed in residential and improve ESG and specificallyclimate - improved cost competitiveness. For commercial properties to improve effi- related disclosure through the EU Action example, the costs of solar photovoltaic ciencies in the areas of heat, noise, and Plan, the Task Force on Climate-related panels have declined by more than light, as well as security. Technologies Financial Disclosures, the work of the 80 percent since 2009. Because renew- also are being deployed to improve the Sustainable Accounting Standards Board ables represent just less than 10 percent efficiency of building materials as well (SASB) as well as the European Bank for of total power generation globally, but as in the areas of packaging, processing, Reconstruction and Development account for almost 50 percent of the waste reduction, and recycling with par- (EBRD) and the Global Centre on growth in global power generation in ticular focus on plastics. Adaptation are therefore to be 2018, this should trigger a transforma- commended.27 tion of the power-generating sector ESG-focused technologies are therefore globally and curb carbon emissions significantly more viable today than just LOOKING AHEAD across other parts of the economy, such a few years ago when government subsi- It can be argued that today we are expe- as in the transportation sector.29 dies played a more important role. The riencing a new industrial revolution, more viable nature of ESG technologies fueled by technologies encompassing For example, electric vehicles pose sig- today is important because many people digitalization, artificial intelligence, nificant disruption risk to traditional question the extent to which ESG will automation, biotechnology, fintech, and auto makers given that more and more survive the next economic downturn. clean technologies. Digital technologies, countries are introducing laws to ban the Indeed, when the last recession struck in which are enabling more individuals and sales of gasoline and diesel cars, in some 2009, global efforts to address key ESG businesses to gain access to financial instances as soon as 2030. This is lead- issues, such as climate change, col- services via mobile phones and the ing to a re-pricing in the car sector such lapsed alongside the removal of many internet, will encourage G20 efforts to that as of 2018 the 25 largest auto man- government subsidies supporting green increase financial inclusion. According ufacturers made up just 20 percent of technologies. to the World Bank, an estimated 1.7 bil- the market cap of the world’s 15 largest lion working-age adults have no access tech companies, compared to 60 percent CONCLUSION to financial services and a disproportion- eight years ago.30 On certain metrics responsible investing ate number (56 percent) are women.28 seems to be gaining ground. For exam- The delivery of financial services is Technology is also part of the solution ple, in Australia and New Zealand the also part of the solution to a number for building smarter and more sustain- proportion of ESG assets relative to of the United Nations’ Sustainable able cities. Cities account for almost managed assets has risen from less than Development Goals such as ending 70 percent of the world’s energy con- 15 percent to 63.2 percent since 2012. poverty, gender equality, and good sumption and a similar share of global Yet, on other metrics, such as the size of health and well-being. carbon dioxide emissions.31 Part of the the green bond market, which represents improvements in cities likely will come just 2 percent of total bonds outstand- Similarly, environmental or clean tech- in the form of technologies invading the ing, the responsible investing market is nologies such as wind, solar, water energy, transportation, and real estate still in its infancy.

INVESTMENTS & WEALTH MONITOR 53

© 2020 Investments & Wealth Institute. Reprinted with permission. All rights reserved. © 2020 Investments & Wealth Institute. Reprinted with permission. All rights reserved. JANUARY FEBRUARY FEATURE | Responsible Investing—The World Tour 2020

However, we see encouraging trends. 4. Finance Watch (March 2019), Global 21. NatCatSERVICE, Munich Re; European For example, the growing number of sig- Green Finance Index 3, https://www. Environment Agency, “Economic Losses finance-watch.org/publication/global- from Climate-Related Extremes In Europe” natories to the PRI, led by the United green-finance-index-3/. (April 2019), https://www.eea.europa.eu/ States, means an increasing number of 5. DWS Global Research Institute, “ESG data-and-maps/indicators/direct-losses- and Corporate Financial Performance” from-weather-disasters-3/assessment-2. asset owners and managers are commit- (December 2015), https://www.dws.com/ 22. NAIC Climate Risk Disclosure Survey, ted to integrating ESG issues into their en-gb/solutions/esg/research/. California Department of Insurance, investment processes. 6. PRI YouGov Responsible Investment Survey https://www.insurance.ca.gov/0250- (September 2015). insurers/0300-insurers/0100-applications/ 7. PRI signatory database (August 2019), ClimateSurvey/index.cfm. ESG also has varying regional invest- https://www.unpri.org/signatories/ 23. Banque de France (July 2019), https://www. signatory-directory. banque-france.fr/en/financial-stability/ ment repercussions, with the strongest 8. See https://www.unpri.org/news-and- international-role/network-greening- correlation between ESG and CFP occur- press/tcfd-based-reporting-to-become- financial-system/about-us. ring in emerging markets. This makes mandatory-for-pri-signatories-in-2020/ 24. See https://unfccc.int/process-and- 4116.article. meetings/the-paris-agreement/what-is- sense because emerging market coun- 9. The Climate Group “Moving to Truly Global the-paris-agreement. tries are particularly susceptible to key Impact” (November 2018), https://www. 25. See https://www.fsb-tcfd.org/. theclimategroup.org/news/moving-truly- 26. DWS Research Institute, “The Quant Road ESG issues such as the environmental global-impact. to ESG Integration” (October 2018), https:// impacts from the burning of fossil fuels, 10. Ibid. www.dws.com/en-gb/solutions/esg/ the social dimension of forced labor, and 11. RE100, The Climate Group, CDP, research/. “Making Business Sense: How RE100 27. SEC Commissioner Hester M. Peirce, the incidence of corruption. Companies Have an Edge on Their “Scarlet Letters: Remarks before the Peers (September 2018), https://www. American Enterprise Institute” (June 18, theclimategroup.org/news/making- 2019), https://www.sec.gov/news/speech/ We believe another important catalyst business-sense-how-re100-companies- speech-peirce-061819. for driving the ESG and climate risk have-edge-their-peers. 28. World Bank, “The Global Findex Database agenda has been increasing interna- 12. Clyde & Co., “Climate Change–The Evolving 2017” (April 2018), https://globalfindex. Landscape of Litigation” (March 2019), worldbank.org/sites/globalfindex/ tional and regional regulation. This https://resilience.clydeco.com/articles/ files/2018-04/2017%20Findex%20full%20 includes the EU Action Plan, the Task climate-change-liability-risks. report_0.pdf. 13. National Oceanic and Atmospheric 29. International Renewable Energy Agency Force on Climate-related Financial Administration (NOAA) National Center for (IRENA), “Renewable Power Generation Disclosures, and the Network for Environmental Information (NCEI), Billion- Costs in 2017” (January 2018), https:// Greening the Financial System, as well Dollar Weather and Climate Disasters www.irena.org/publications/2018/ (1980–2019), https://www.ncdc.noaa.gov/ Jan/Renewable-power-generation- as many insurance regulators around the billions/overview. costs-in-2017. world introducing climate consider- 14. The Climate Group, CDP, “Approaching a 30. KPMG, “The Changing Landscape of Tipping Point: How Corporate Users Are Disruptive Technologies” (January 2018), ations into their regulatory reviews. Redefining Global Electricity” (January https://assets.kpmg/content/dam/kpmg/it/ 2018), https://www.theclimategroup.org/ pdf/2018/04/The-Changing-Landscape-of- Michael Lewis is head of ESG thematic news/approaching-tipping-point. Disruptive-Technologies.pdf. research at the DWS Research Institute 15. Adam B. Smith, “2018’s Billion Dollar 31. C40 Cities, https://www.c40.org/why_cities. Disasters in Context,” National Oceanic and is based in London. He earned a BSc in and Atmospheric Administration (NOAA) economics from the University of Bristol and an National Center for Environmental Important information – U.S. MSc in economics from the London School of Information (NCEI) (February 7, 2019), DWS does not render legal or tax advice, and the information Economics and Political Science. Contact him https://www.climate.gov/news-features/ contained in this communication should not be regarded as at [email protected]. blogs/beyond-data/2018s-billion-dollar- such. The comments, opinions and estimates contained herein disasters-context. are based on or derived from publicly available information from Robert Bush is part of the DWS Research 16. Mississippi River Cities and Towns Initiative sources that we believe to be reliable. We do not guarantee their Institute based in New York. He earned a BA (MRCTI), “As Floods Deluge Midwest accuracy. This material is for informational purposes only and in classics from University College London, Towns, Where Is National Response to sets forth our views as of this date. The underlying assumptions Climate Disasters?” (April 2019), https:// and these views are subject to change without notice. a diploma in accounting and fnance from www.mrcti.org/mrctiinthenews/2019/4/11/ Past performance is not indicative of future returns. London School of Economics, an MBA in mayors-as-floods-deluge-midwest-towns- fnance and economics from Columbia where-is-national-response-to-climate- Forecasts are based on assumptions, estimates, opinions and Business School, and an MSc in applied disasters. hypothetical models that may prove to be incorrect. Investments 17. Ibid. come with risk. The value of an investment can fall as well as statistics from Oxford University. Contact rise and your capital may be at risk. You might not get back the him at [email protected]. 18. Climate Central, “Rising Seas Threaten Land Home to Half a Billion” (November 8, amount originally invested at any point in time. 2015), https://sealevel.climatecentral.org/ The brand DWS represents DWS Group GmbH & Co. KGaA and any news/global-mapping-choices. of its subsidiaries, such as DWS Distributors, Inc., which offers ENDNOTES 19. Sönke Kreft, David Eckstein, and Inga investment products, or DWS Investment Management Americas, 1. GSIA, “Global Sustainable Investment Mechior (2016), “Global Climate Risk Inc. and RREEF America L.L.C., which offer advisory services. Review 2018” (April 2019), http://www. Index 2017,” https://germanwatch. gsi-alliance.org/trends-report-2018/. org/sites/germanwatch.org/files/ 2. See https://www.issgovernance.com/ publication/16411.pdf. solutions/japan-stewardship-code/. 20. Asian Development Bank, “A Region at 3. See https://www.unpri.org/sustainable- Risk: The Human Dimensions of Climate financial-system/explaining-the-eu- Change in Asia and the Pacific” (January action-plan-for-financing-sustainable- 2017), https://www.adb.org/publications/ growth/3000.article. region-at-risk-climate-change.

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