Climate pragmatism in a fragmented world
The circumstances are that our world is increasingly fragmented. Physical impacts differ drastically by location, climate policies differ substantially by markets, as do energy mix and cleantech adoption.
Pinpointing exposures
Glimmers of what 'the worst' might look like are coming into view. The cost of hurricanes, severe thunderstorms and floods amplified by a warming climate has topped US$100 billion for five years running.
Modelling by MSCI finds that within the US$9 trillion market for mortgage-backed securities in the US, properties exposed to high hazard-loss ratios are lagging in home price appreciation and losing insurance policy renewals at twice the rate as those in lower-risk areas.
Investors, lenders, insurers and companies alike now seek to integrate risk analytics that capture location data in geospatial detail. Knowing which facilities face which hazards across potentially millions of assets in a portfolio is essential for modelling financial impacts under multiple climate scenarios.
Investors have traditionally viewed their geographic exposures based on companies' headquarters or major revenue segments, which cluster in economic hubs. Yet, physical risk can lie elsewhere – along supply routes or at sites of production, storage and logistics.
A NEWSLETTER FOR YOU
Friday, 12.30 pm ESG Insights
An exclusive weekly report on the latest environmental, social and governance issues.
Sign Up
Sign Up
Furthermore, physical hazards, nature dependencies or changes in ecosystems increasingly overlap, impacting business decisions on where to build plants and how to reconfigure supply chains, while challenging assumptions about asset resilience and productivity.
More than one-third of corporate facilities in the US are located in areas that have very high exposure to water scarcity, for example, and 41 per cent of the world's listed companies face at least one high nature-related risk, such as air or soil condition.
Transition-focused
Preparing for the worst does not mean giving up on accelerating decarbonisation. Assets in transition funds, including strategies that invest in emissions-intensive sectors, rose 20 per cent last year and now account for nearly 40 per cent of publicly listed climate funds.
The shift to financing the harder-to-decarbonise parts of the economy is a sign that investors have become more targeted with maximising the impact of their climate capital, both in reducing emissions levels and pursuing transition-focused opportunities.
The world's listed companies are on track to overshoot their collective carbon budget for staying under the Paris Agreement goal within the next two years, aligning with a warming trajectory of about 2.7 degrees Celsius above pre-industrial levels, based on their targets and emissions trajectories.
The aggregate temperature masks divergence. Even before the flare-up of trade tensions, differences in national climate policies drove investors to differentiate the pace and scope of energy transition investment opportunities among countries and sectors.
As geopolitical shifts further fragment different markets' transition trajectories, investors are seeking indicators that help them navigate differences in risks and opportunities, while financing decarbonisation in the economy's critical sectors.
Those include a mosaic of market factors such as policy incentives and the availability of commercially feasible technologies for different sectors, as well as company-specific factors to gauge companies' readiness for the transition.
Climate-proofing
Somewhere between aiming for the best and preparing for the worst is an emerging pragmatism about a growing investment opportunity in serving the inevitable need for households, businesses and communities to prepare for, adapt to and recover from rising physical impacts.
Some areas in Asia, for example, are warming at triple the global average, endangering the health of vast urban populations.
Investors are beginning to explore ways to gain exposure to adaptation and resilience product solutions – a category that encompasses everything from hybrid seeds and heat-resistant clothing to water management and sustainable real estate.
A series of industry frameworks have emerged to help guide investors looking to identify the relevant businesses, including the Climate Resilience Investments in Solutions Principles (Crisp) framework developed by the investor-led Global Adaptation and Resilience Investment working group.
Our institute is using artificial intelligence large language models to identify companies within the global investment universe with exposure to resilience solutions that potentially fall within the Crisp framework.
A warming world and the unevenness of the energy transition pose both material risk and profound opportunity. For investors, it is a moment to embrace the complexity and contradictions while positioning for what is next. In other words, to adapt. OMFIF
The writer is founding director of the MSCI Sustainability Institute
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Times
a day ago
- Business Times
Singapore's projected data centre capacity growth lowest among Asia-Pacific: PwC report
[SINGAPORE] Land limitations, as well as policies that support green data centres in Singapore, have constrained the city-state's data centre capacity growth, indicated a recent PwC report. Singapore's data centre capacity is projected to have an compound annual growth rate (CAGR) of 8 per cent between 2024 and 2028, the lowest rate out of 14 Asia-Pacific markets analysed in the report. However, it highlighted that the Johor-Singapore Special Economic Zone (SEZ) could potentially be a model for data centre operators looking to set up their assets in dual locations. While Singapore has limited land and sources of renewable energy, Johor presents a compelling value proposition with more affordable land, lower construction costs and reduced operating expenses. This sets the stage for a dual-location strategy in which low-latency artificial intelligence (AI) applications can be hosted in Singapore, where robust digital infrastructure supports real-time responsiveness and minimises downtime, stated the report. Meanwhile, high-latency training workloads can be located in Johor, where energy and space constraints are less severe. A NEWSLETTER FOR YOU Friday, 12.30 pm ESG Insights An exclusive weekly report on the latest environmental, social and governance issues. Sign Up Sign Up 'This allows corporations to conduct high-latency AI training with scale in these neighbouring regions while situating critical, last-mile, low-latency AI inference workloads in Singapore,' stated the report. Low-latency computing supports AI applications that require near-instantaneous processing and response. Hence, it would be more beneficial for data centres that support these applications to be located closer to data sources for reduced response times and improved performance. High-latency computing involves teaching a model to identify patterns or perform tasks by processing vast datasets. It is highly computer-intensive, hence, scale and power access become the primary considerations. With strong subsea cable connectivity linking both markets to global hubs, as well as tax incentives and access to upgraded infrastructure being offered for companies establishing data centres in the region, the report noted that 'the SEZ has the potential to serve as a model for regional data centre integration – enabling workload specialisation and shared benefits across neighbouring territories'. Data centres in Asia-Pacific Across Asia-Pacific, data centre capacity is expected to more than double from 12.2 gigawatts (GW) of live capacity at the end of 2024 to 26.1 GW by 2028, said the report. The region's AI-related data centre capacity is expected to grow at a CAGR of 21 per cent from 2.2 GW in 2024 to 4.8 GW in 2028. Indonesia, Malaysia, India and Japan have emerged as the frontrunners in the report, with a forecasted CAGR of at least 30 per cent over the same period. However, the report noted that access to energy continues to pose a growing concern for many territories. 'The energy demands of AI workloads are pushing data centre operators to seek locations with stable, high-capacity electricity supply and low risk of disruption. Energy costs and sustainability targets are also front of mind – prompting operators to favour areas with affordable electricity and access to renewable sources,' stated the report. It also added that a more fundamental issue is access to the energy grid itself, as grid readiness will determine whether operators can reliably tap into imported energy easily. Renewable energy alone is may not be enough sufficient to power the energy consumption demands of data centres. The electricity consumption of the top six Asia-Pacific territories by data centre capacity – China, Japan, Australia, India, Singapore and South Korea – is expected to grow by 16 per cent annually until 2030, reaching between 750 and 800 terawatt-hour (TWh). Renewable energy generation capacity, however, is expected to increase at a lower pace of 13 per cent annually. PwC analysis showed that the current renewable energy gap of between 200 and 300 TWh may widen to more than 500 TWh. 'So, while renewable energy remains central to powering data centres more sustainably, it's unlikely to be enough to meet the region's fast-growing energy demands alone. To close the widening gap, data centre operators are exploring alternative energy sources – including hydrogen, ammonia and nuclear power – while also investing in efficiency improvements and carbon offset strategies,' said the report. Currently, data centre operators are purchasing carbon offsets or renewable energy certificates (REC) to meet sustainability goals. However, the report said that operators are under growing pressure to contribute directly to emissions reduction, and not just offset them. 'While they may serve as a quick solution, they cannot be a permanent solution if data centres are to truly decarbonise,' said the report. While having access to renewable energy is increasingly important for data centre operators, South-east Asia still lags in renewable energy adoption. The shift from fossil fuel dependency to renewables in South-east Asia will require substantial investment in infrastructure. However, there is hesitation among governments in the region to increase public debt for infrastructure development, which often limits the speed of transition. 'Private investors must carefully navigate regulatory policies, political dynamics and licensing requirements when investing in or establishing renewable energy facilities. Players must adopt a localised perspective when evaluating the feasibility of renewable energy investments in different territories,' added the report.
CNA
3 days ago
- CNA
Global stock index sinks with dollar, bond yields after weak US jobs data
NEW YORK/LONDON :MSCI's global equities index sold off sharply on Friday and the dollar took a dive after weaker-than-expected U.S. jobs data fueled economic worries and boosted bets for September interest rate cuts while investors also considered U.S. President Donald Trump's latest tariff announcements and key personnel changes. U.S. Treasuries were in demand after the Labor Department reported that the U.S. economy added 73,000 nonfarm payrolls last month, below economists' expectations for 110,000. June's job growth was revised sharply lower to 14,000 from 147,000. After the report, Trump said he ordered his team to fire the commissioner of the U.S. Bureau of Labor Statistics, Erika L. McEntarfer, nominated by prior President Joe Biden for the role. Then the dollar index and U.S. Treasury yields lost further ground when the Federal Reserve said Governor Adriana Kugler is resigning early from her term on Aug. 8, causing some investors anxiety at a time when Trump has loudly disagreed with Fed rate policies. Late on Friday, traders were betting on an 87.5 per cent probability for a September rate cut compared with 37.7 per cent on Thursday, according to CME Group's FedWatch tool. "The market is reacting to the possibility of the economy flipping into recession. The weak jobs data is piling on to weak earnings reports and weak guidance from some corporations," said Luke Tilley, Chief Economist, Wilmington Trust. MSCI's gauge of stocks across the globe fell 12.23 points, or 1.32 per cent, to 917.39, suggesting its biggest daily drop since mid-April. The softer jobs data added to losses for the global index, which was already in the red after a host of tariff announcements from Trump the day before. On Thursday, Trump ordered tariffs ranging from 10 per cent to 41 per cent on U.S. imports from several major trading partners. He increased duties on Canadian goods to 35 per cent from 25 per cent for all products not covered by the U.S.-Mexico-Canada trade agreement. He set a 25 per cent rate for India's U.S.-bound exports, 20 per cent for Taiwan's, 19 per cent for Thailand's and 15 per cent for South Korea's. Mexico, however, got a 90-day reprieve from higher tariffs to allow for deal talks. On the earnings front, market heavyweight Amazon tumbled more than 8 per cent on Friday after its quarterly report showed cloud computing growth that disappointed investors. On Wall Street, the Dow Jones Industrial Average fell 542.40 points, or 1.23 per cent, to 43,588.58, the S&P 500 fell 101.38 points, or 1.60 per cent, to 6,238.01, for its biggest one-day percentage drop since May 21 and the Nasdaq Composite fell 472.32 points, or 2.24 per cent, to 20,650.13, its steepest one-day drop since April 21. Earlier, the pan-European STOXX 600 index ended down 1.89 per cent, its biggest drop since April 9. In currencies, the greenback reversed course to fall sharply after the data due to increased expectations for rate cuts. Earlier it had found support in fading hopes for U.S. rate cuts. The dollar index, which measures the greenback against major currencies including the yen and the euro, fell 1.37 per cent to 98.66, the euro was up 1.52 per cent at $1.1589. Against the Japanese yen, the dollar weakened 2.26 per cent to 147.32. "The way (the market) is going to interpret (the departures) is in a very dollar-negative way," Juan Perez, senior director of trading, Monex USA, referring to both the Kugler and McEntarfer news. "No matter what the economic picture in the United States, the one thing that holds the U.S. dollar strong in the eyes of the world is the authority and the independence of the Federal Reserve. Whenever anything comes to potentially put that into compromise then that's when the U.S. dollar spirals down." U.S. Treasury yields plunged on the jobs data and the increased bets for September rate cuts, and fell to fresh session lows in the late afternoon after the Kugler announcement. Peter Tuz, president of Chase Investment Counsel, said Trump "is getting a bigger chance to appoint people whose views match his own" at the Fed. Regarding the BLS firing Tuz said "I don't like to see a bureaucrat fired just because the data that gets presented doesn't support the administration's policies." The yield on benchmark U.S. 10-year notes fell 14 basis points to 4.22 per cent, from 4.36 per cent late on Thursday. The 30-year bond yield fell 6.4 basis points to 4.8211 per cent. The 2-year note yield, which typically moves in step with interest rate expectations for the Federal Reserve, fell 26.1 basis points to 3.69 per cent. In energy markets, oil prices sank about 2.8 per cent after the jobs data and on jitters about a possible production increase by OPEC and its allies. Oil had settled around 1 per cent lower on Thursday. U.S. crude settled down 2.79 per cent, or $1.93 at $67.33 a barrel and Brent settled at $69.67 per barrel, down 2.83 per cent, or $2.03 on the day. Elsewhere in commodities, gold prices rallied to a one-week high as investors sought safety after the weak jobs report, policy easing expectations and the latest tariff announcements. Spot gold rose 2.14 per cent to $3,360.45 an ounce.
Business Times
4 days ago
- Business Times
CSOs: What's holding back sustainability in real estate?
WITH environmental considerations rising in importance across the Asia-Pacific, chief sustainability officers (CSOs) are under mounting pressure. Beyond showing a green upside to projects, they must also make a compelling business case for them. The central challenge for today's CSO is how to deliver on sustainability goals profitably while balancing the needs of multiple stakeholders. This means making the most of recent financial and technological innovations. This new pressure is a key finding of CBRE's 2025 Asia Pacific Real Estate Chief Sustainability Officer Survey. We interviewed executives from nearly two dozen corporates in Asia-Pacific – most notably Hong Kong, Australia, Singapore and mainland China – divided equally between landlords and investors in commercial real estate. The survey reveals a maturing landscape: Nearly 90 per cent of these companies have a dedicated sustainability function – up 10 per cent in two years – and 70 per cent of their CSOs are full-time. When asked to identify their most pressing challenges, these leaders highlighted three issues that have grown sharply in importance since 2024. First, the CSOs pointed to the complexity of the current policy and business environment. Second, they cited the difficulty of establishing clear financial benefits of meeting their sustainability goals, and the typically lengthy payback periods for sustainability investments. A NEWSLETTER FOR YOU Friday, 12.30 pm ESG Insights An exclusive weekly report on the latest environmental, social and governance issues. Sign Up Sign Up Finally, CSOs find that they increasingly must do more with less. More than 60 per cent said they had no plans to expand their sustainability teams, despite heightened operational challenges. New normal One reason for this corporate caution is a regional step change. Sustainable buildings are no longer the exception in Asia-Pacific, they are becoming the norm. CBRE research indicates that the share of green-certified Asia-Pacific office floorspace crossed the 50 per cent threshold in 2024. Our 2025 survey reflects this momentum: Almost two-thirds of respondents said that by 2028, at least 80 per cent of their portfolio will consist of green-certified buildings. While this is good news for sustainability, it also means that the scope for a green premium is fading. Tenants now expect sustainability features and performance as a standard offering, not an extra for which they will pay higher rent. The exception is in less mature Asia-Pacific markets, where the supply of green buildings is tighter and occupiers remain willing to pay more for a building that aligns with their sustainability goals. This leaves CSOs in the position of needing to meet tenant expectations for green buildings – 60 per cent reported pressure from tenants in this regard – while also satisfying internal stakeholders to justify sustainability investments in financial terms, as opposed to treating sustainability as an end in itself. Several CSOs said they needed to demonstrate a return on investment to win approval for projects. The way forward How, then, should CSOs go about this? The path forward involves shifting the focus from purely environmental benefits to the underlying business case and asset resilience. The first step is to recognise that green is the new normal. The sustainability of commercial buildings in Asia-Pacific is quickly transitioning from a 'nice to have' to a 'must have' – an essential component of the asset's value. Additionally, assessing the risk of assets becoming stranded as a result not only of changing tenant expectations but also regulatory change, must be a core part of the calculus for CSOs in establishing the business case for sustainability investments. Next, while sustainability tends to focus on carbon emissions, energy savings and cost savings usually go hand in hand. Sustainable building materials offer an example – for instance, the use of abundant bamboo instead of timber in China. Energy dashboards that optimise lighting as well as heating, ventilation and air-conditioning systems around building footfall reduce both costs and emissions. Energy retrofits that limit energy waste can have the same impact, although some CSOs noted government incentives are often needed to make these projects viable. On the positive side, the financial sector also offers additional help. Energy upgrades and new green construction are often eligible for green finance. Sustainability-linked loans are the most common instrument, which 77 per cent of survey respondents reported using, alongside green loans, green bonds and other similar instruments. Concessional financing can substantially improve the business case for sustainability projects. Lastly, as climate change poses a direct physical threat to buildings, investing in building resilience is a core part of protecting an asset's long-term value. Taking an integrated approach that prioritises resilience alongside other factors makes sense at a time when under-insurance against climate risks is a growing challenge. Overall, CSOs can build a stronger business case by focusing on projects that strengthen an asset's green credentials while simultaneously lowering its energy costs and bolstering its climate resilience. This approach then becomes as much about the bottom line as it is about cutting carbon emissions. Ultimately, real estate leaders who integrate sustainability with profitability will set the pace for the region's future. The writer is head of research for Asia-Pacific at CBRE
