Climate change is the long-term alteration of weather patterns caused by global warming. Left unchecked, planetary heating will lead to substantial physical risks from increasingly severe hurricanes, floods, droughts and forest fires. All have been seen in greater numbers as the Earth records progressively hotter years.

Rising sea levels as rainfall rises and polar ice caps melt threatens to displace millions of people in coastal areas, while higher temperatures threatens the future of agriculture. All present grave threats to humanity. Global warming can, however, be contained if greenhouse gas emissions are reduced now and the world becomes carbon neutral.

Global warming has predominantly been caused by the long-term burning of fossil fuels since the Industrial Revolution of the 18th century. The 2.5 trillion tons of greenhouse gases produced since 1750 have raised atmospheric concentrates of carbon dioxide (CO2) by 67% and average global temperatures by more than 1 °C.¹ Much of this is now locked in, and irreversible.²

The three main greenhouse gases are carbon dioxide, methane (CH₄) and nitrous oxide (N₂O), most of which are generated by industrial processes. Emissions differ from pollution in that CO2 is a natural byproduct of life – we breathe it out every day – while much of the methane comes from farm animals chewing grass.

Most of these emissions are absorbed by oceans, or are held on land by natural carbon sinks such as permafrost, forests, mangroves and coral reefs. The rest becomes trapped in the atmosphere, unable to escape into space, causing the planet to heat up over many decades.

Warmer atmospheres create more moisture in the air, leading to heavier and more unpredictable rainfall, floods and storms. It has also led to more extreme summer temperatures, such as heatwaves in previously cold regions such as the Arctic, and the growing desertification of formerly fertile areas.

Ten of the warmest years in recorded history have occurred since 2005. The hottest was 2016, when the Earth’s atmosphere was on average 0.94 °C warmer than the global mean since 1880.

The year 2024 was the warmest year since global records began in 1850 at 1.29 °C (2.32 °F) above the 20th century average of 13.9 °C (57.0 °F). This value is 0.10 °C (0.18 °F) more than the previous record set in 2023. The ten warmest years in the 175-year record have all occurred during the last decade (2015-2024). Of note, the year 2005, which was the first year to set a new global temperature record in the 21st century, is now the 13th-warmest year on record. The year 2010, which had surpassed 2005 at the time, now ranks as the 12th-warmest year on record. ³

Figure 1: The ten warmest years on record

Source: US National Oceanic and Atmospheric Administration (NOAA) ⁴

CO2 levels rise to new records with every passing year. Research shows 419 parts per million (ppm) recorded in the atmosphere in June 2021 was last seen on Earth over four million years ago.⁶ At that time in the Pliocene Era, before humans had even evolved, the average surface temperature was 2-3 °C higher than pre-industrial levels, and the average sea level was up to 25 meters above what it is today.⁷ By January 2025, that level had risen to 428.4 parts per million, according to the CO2.earth research site, with each previous year setting a new record. ⁸

Climate change also threatens agricultural production, as milder winters and earlier springs interrupt crop-growing patterns in most areas. Higher temperatures have a double whammy effect on insects. In warmer areas, they threaten to wipe out the ‘friendly’ pollinating insect populations. And vice versa, warming exposes countries to ‘unfriendly’ disease-bearing insects in colder areas.

Figure 3: Levels of CO2 in the atmosphere

Source: https://www.climate.gov/media/15993

Climate change was first taken seriously in the 1980s, partly following a successful campaign to end the use of chlorofluorocarbon (CFC) gases in aerosol sprays that were damaging the ozone layer. To study the problem, the World Meteorological Organization and the United Nations Environment Program set up the Intergovernmental Panel on Climate Change (IPCC) in 1988.

Attempts to curb emissions began in earnest with the UN Conference on the Environment and Development – which became known as the Earth Summit – in Rio de Janeiro in 1992. This produced the UN Framework Convention on Climate Change (UNFCCC), which began to meet annually as the Conference of the Parties (COP).

The Earth Summit was followed in 1997 by the Kyoto Protocol, the first international treaty that committed signatories to curbing emissions “to a level that would prevent dangerous anthropogenic interference with the climate system”. The more ambitious Doha Amendment, which introduced binding targets for 37 countries including EU member states, followed in 2012.

The UN took a bolder step in 2015 by putting a temperature limit on global warming for the first time in the landmark Paris Agreement. Its core aim is to keep global warming to below 2 °C above pre-industrial levels by the end of this century, and to pursue efforts to limit it to 1.5 °C. It was signed by all 196 nation members of the UNFCCC before the US pulled out in 2017 under President Trump, rejoined it in 2021 under President Biden, and then pulled out again when Trump returned in January 2025. Only four countries – the US, Iran, Libya and Yemen – are not signatories to Paris.

Achieving these goals required clear carbon reduction targets. In 2018, the IPCC said that in order to achieve the 1.5 °C goal, emissions needed to be cut by 40-60% from 2010 levels by 2030, reaching net zero around 2050. To achieve the 2 °C target, emissions needed to be cut by 25% by 2030 in order to achieve net zero by 2050.

A new temperature record of more than 1.5 °C of warming was hit in 2024, according to the EU’s Copernicus Climate Change Service. Its satellites and terrestrial systems showed that the Earth’s average surface temperature reached of 15.1 °C.⁹ This was 0.72 °C above the 1991-2020 average, and 1.60 °C above pre-industrial levels. However, true global warming is measured over 10 years or more; long-term global warming is now at 1.3 °C, according to the World Meteorological Organization’s State of the Climate 2024 report.¹⁰

Figure 4: Temperature records as recorded by Copernicus

Source: ERA5, Copernicus Climate Change Service. ¹¹

The IPCC has warned that at current levels of (in)activity, the 2 °C target will probably be reached by 2030, and that global warming of 3 °C by the end of the century was more likely. In its sixth assessment report in 2023, the IPCC further warned that sea levels would rise by 0.63 m-1.01 m by 2100 unless the world takes action now, with evidence that the oceans had risen by 3.2 mm to 4.2 mm a year between 2006 and 2018.¹² Over the next 2,000 years, the global mean sea level will rise by about 2-3 meters if warming is limited to 1.5 °C and by 2-6 meters if limited to 2 °C, the IPCC said.

¹ https://www.mckinsey.com/business-functions/sustainability/our-insights/confronting-climate-risk
² https://www.ipcc.ch/sr15/
³ https://www.ncei.noaa.gov/access/monitoring/monthly-report/global/202413 ⁴ https://www.ncei.noaa.gov/access/monitoring/monthly-report/global/202413
⁵ https://www.youtube.com/watch?v=Yg7E3kI7Ifo
⁶ https://www.bloomberg.com/news/articles/2021-06-07/co-reaches-its-highest-level-in-more-than-4-million-years?sref=Ih2p2g
⁷ https://www.climate.gov/news-features/understanding-climate/climate-change-atmospheric-carbon-dioxide#:~:text=The%20global%20average%20atmospheric%20carbon,least%20the%20past%20800%2C000%20years.
⁸ https://www.co2.earth/
⁹ https://climate.copernicus.eu/copernicus-2024-first-year-exceed-15degc-above-pre-industrial-level
¹⁰ https://wmo.int/publication-series/state-of-global-climate-2024
¹¹ https://climate.copernicus.eu/copernicus-2024-first-year-exceed-15degc-above-pre-industrial-level
¹² https://www.ipcc.ch/report/sixth-assessment-report-cycle/

Decarbonization is the only way out of the impending hothouse world reality. Targeting carbon neutrality by 2050 has become the principal means of mitigating climate change, for example, by increasing the use of renewable energy and electric vehicles.

However, adapting to our existing global warming reality is also now essential. Climate adaptation methods range from rebuilding sea defenses and making air purification equipment and refrigerants, to new drugs that combat the spread of known and emerging diseases that warming temperatures and extreme weather events may exacerbate. ¹³

Much still depends on reducing emissions, with the ability to acquire reliable data that can measure it. The Greenhouse Gas Protocol was established in 1998 to provide a global accounting standard for measuring emissions and mitigation activities.¹⁴ In 2023, 97% of S&P 500 companies used it to report on their emissions. The GHG Protocol is now used globally alongside data gathering initiatives such as the Task Force for Climate-Related Financial Disclosures and the Carbon Disclosure Project.

Emissions are measured in three scopes. Scope 1 emissions are those that are directly generated by the company, such as through factory chimneys or the exhaust fumes of aircraft. Scope 2 emissions are created by the generation of the electricity or heat needed by the company to sell its main products. Scope 3 emissions are caused by the entire value chain, including the consumer of the product over its life cycle.

A carmaker would have relatively low Scope 1 and 2 emissions for making the car, but the user of the vehicle would burn petrol to run the car over many years, causing high Scope 3 emissions over its lifetime.

While Scope 1 and 2 data are relatively easy to acquire, Scope 3 data is far more elusive. For example, a car manufacturer can measure its own Scope 1 and 2 emissions during production, but after sale, it is far more difficult to know how many kilometers the car owner drove for how many years.

The chart below shows levels of emissions in gigatons and the addition this would make to global warming. Having no climate policies could lead to 4.8 °C of warming, while current pledges miss the 2 °C target limit.

Figure 5: Warming scenarios based on policy levels

Source: Our World in Data.

A country’s progress toward cutting these emissions and heading for carbon neutrality can be mapped because the Paris Agreement requires all signatories to quantify their decarbonization efforts through Nationally Determined Contributions (NDCs). Some 192 countries have submitted NDCs, each committing to decarbonize. ¹⁵

In all, countries representing about 61% of all global carbon dioxide emissions, 68% of the world’s gross domestic product, and 58% of the global population are now covered by net-zero targets, according to the not-for-profit group Energy & Climate Intelligence Unit.¹⁶ These are mostly pledges to become carbon neutral by 2050 to meet the main Paris goal.

Some nations have more ambitious plans – Austria and Uruguay have pledged to do so by 2040. China, which has the world’s largest carbon footprint, has set a longer-term target of 2060. In 2023, the country accounts for 31% of global CO2 emissions, versus 13% for the US, 8% for India and 7% for the EU, according to Our World in Data.¹⁷ Under the ‘European Green Deal’, the EU has pledged to achieve a 55% reduction in greenhouse gas emissions compared to 1990s levels by 2030.

Figure 6: Share of global emissions

Source: Our World in Data.

But the progress made so far has not been encouraging. The United Nations Framework Convention on Climate Change (UNFCCC) reported that the current combined climate policies of national governments will reduce global greenhouse gas emissions by only 0.5% in 2030, when we need to achieve 42% to reach net zero by 2030.¹⁸ The UN Emissions Gap Report of 2024 – perhaps appropriately titled ‘No more hot air, please’ – says cuts of 42% in emissions are needed by 2030 and 57% by 2035 to get on track for 1.5 °C.¹⁹

The current NDC status quo puts the world on course for a temperature increase of 2.6-3.1 °C over the course of this century, causing huge damage to communities and the global economy, according to UNEP.²⁰ It says roughly USD 5 trillion a year is needed from 2021 to 2050 – a six-fold increase on current levels. This also needs to be backed by reform of the global financial architecture, strong private sector action and international cooperation that is currently on hold in many areas.

Virtually every country in the world has an emissions gap, and none are compatible with achieving the 1.5 °C scenario according to the Climate Action Tracker (CAT), a German project which collects data on decarbonization initiatives by governments and measures them against the goals of the Paris Agreement.²¹

The CAT tracks NDCs from EU member states and 36 other countries, covering about 80% of global greenhouse gas emissions and about 70% of the world’s population. As with carbon clocks, it also makes for grim reading, predicting warming of 2.7 °C by 2100 based on current pledges.

Figure 7: Scenarios for global temperature increases

Source: Climate Action Tracker.

In its latest update in December 2024, major economies such as the EU, US, Germany and Japan were labelled as ‘insufficient’; China and India were ‘highly insufficient'; and countries including the major oil producers of Russia and Saudi Arabia were ‘critically insufficient’.

You can check the progress of your country by clicking on this visual from Climate Tracker under 'Find your country’.

Figure 8: National progress on climate action

Source: Climate Action Tracker.

Investors are making their own pledges to decarbonize portfolios and make their assets under management carbon neutral by 2050. In 2020, the International Investor Group on Climate Change (IIGCC) together with six regional investor networks launched the Net Zero Asset Managers initiative. In January 2024, it had 325 signatories (including Robeco) with USD 57 trillion in assets under management, before its suspension due to political pressure later that year. ²²

Under the initiative, investors agreed to set interim net-zero targets, though how best to decarbonize is still debated. Simply divesting higher-carbon companies, for example, does not solve the underlying problem if the equities or bonds are bought by someone else. Many use engagement instead to persuade higher-carbon companies to change their business models so that they can continue to invest in the longer term.

Identifying them is easy enough, since the168 companies in the Climate Action 100+ investor collaboration account for more than 80% of global industrial emissions. ²³ The ‘usual suspects’ are majors in oil and gas, utilities and transport, but also agriculture, pulp and paper and metal smelting.

There has however been a backlash against environmental, social, and governance (ESG) investing, including the climate component embedded in the E, that began in the US and spread globally. In December 2024, the US House of Representatives Judiciary Committee sent a letter to 60 US asset managers criticizing their involvement with the Net Zero Asset Managers Initiative and the engagement collaboration Climate Action 100+.

The letter said their membership was a potential violation of antitrust laws and fiduciary duty that “has colluded to force American companies to decarbonize and reach net zero.” BlackRock and other large names in asset management subsequently withdrew from the alliance, indefinitely suspending their ESG investing operations.

Similar political pressure was behind the withdrawal by the six largest banks on Wall Street from a net-zero initiative for banks as well as the decision by the Federal Reserve to discontinue its membership of the Network for Greening the Financial System (NGFS), the global network of central banks focused on addressing climate change.

In the EU, net zero is much less politicized. Legislation and regulation is continuing to pursue decarbonization, both onto countries and on investors. The EU Sustainable Finance Action Plan aims to promote sustainable investment including a bigger push into renewable energy and carbon capture technology across the 27-nation bloc.

A world-leading Emissions Trading Scheme underpins the EU’s emission-reduction plans, as it sets a carbon price which acts as a tax on participants. The EU Carbon Border Adjustment agreement came into effect in October 2023 to create a level playing field and protect European industries against cheaper, high-carbon products from outside the EU. It aims to prevent carbon leakage by imposing a carbon levy on imports from certain non-EU and non-EFTA countries, matching the carbon price within the EU.

EU sustainability definitions are gathering pace. In June 2020, the EU Taxonomy defined what economic activities are classified as ‘sustainable’ under the European Green Deal. The Sustainable Finance Disclosure Regulation (SFDR), introduced in March 2021, classified the levels of sustainability that investment products intend to convey. In June 2024, the European Securities and Markets Authority (ESMA) published new guidelines which set out clear definitions and thresholds for funds claiming the sustainability label.

¹³ https://www.msci-institute.com/themes/climate/how-to-make-climate-adaptation-and-resilience-investable/#anchor_Exhibit_3_A_sample_of_adaptation_and_resilience_companies_anonymized_
¹⁴ https://ghgprotocol.org/
¹⁵ https://www4.unfccc.int/sites/NDCStaging/Pages/All.aspx
¹⁶ https://ca1-eci.edcdn.com/reports/ECIU-Oxford_Taking_Stock.pdf?mtime=20210323005817&focal=none
¹⁷ https://ourworldindata.org/co2-emissions
¹⁸ https://unfccc.int/sites/default/files/resource/cma2021_02E.pdf
¹⁹ Emissions Gap Report 2024 | UNEP - UN Environment Programme
²⁰ https://www.unep.org/resources/emissions-gap-report-2024
²¹ https://climateactiontracker.org/
²² https://www.netzeroassetmanagers.org/
²³ https://www.climateaction100.org/

Climate change presents a double materiality for investors because they mutually affect each other: global warming directly affects the likely returns of investments, while the investments themselves have a direct impact on climate through emissions or waste.

It is also both a risk and an opportunity, which means investors need to understand its long-term consequences. Therefore, it is essential to integrate ESG factors into the investment process, focusing mostly on the E.

The risks take two forms: physical and transitional. Physical risk primarily accrues from the increasing threat caused by more extreme weather, such as storms and floods that damage industrial plants or buildings, or make agricultural land unusable. Insurers have already warned that many businesses will become uninsurable – such as those on flood plains or coastal regions – if climate change goes unchecked.

But there are also massive opportunities for investors, as the graphic below shows. These can be categorized into five main arenas:

• Transport, including electric vehicles and lower emission fuels

• Nature, led by changing consumer trends and natural carbon capture

• Industry, from scientific advancements to more ‘picks and shovels’

• Power, with renewables, hydrogen and nuclear power dominating

• Buildings, as many new-builds are now green from the outset
  

Figure 9: Investment pathways to net zero

Source: IEA, GS Sustain, BAML Research.

Much of the focus has shifted to the transition to a lower-carbon economy, encouraging companies to develop net-zero strategies as they reduce their emissions. This means embracing (rather than excluding or ignoring) the higher-carbon companies and industries where change is essential, including utilities overly reliant on fossil fuels, those using higher-carbon processes such as plastics, and cutting waste.

A particular focus is on the hard-to-abate sectors such as the manufacture of steel and cement, which require high temperatures that are currently found in blast furnaces powered by fossil fuels. Moving these to electric arc furnaces is one means of solving this issue.

Figure 10: Hard-to-abate sectors account for 31% of emissions

To help companies develop net-zero plans, the Taskforce on Climate-related Financial Disclosures (TCFD) developed a framework to help them more effectively disclose climate-related risks and opportunities through their existing reporting processes.²⁴

Aligning investments with the Paris goals has been helped by a number of initiatives in recent years. The first was the creation of the Paris Aligned Investment Initiative by the IIGCC in 2019.

The Net Zero Asset Managers Initiative – currently in abeyance – followed shortly afterwards, leading to carbon neutrality pledges by 2050 or earlier from asset owners and asset managers the following year. Guidance on how to decarbonize portfolios in line with the 1.5 °C goal was formulated in the Net Zero Investment Framework, launched in March 2021.

But how to judge decarbonization? Most portfolios are judged against a benchmark, such as the MSCI World Index, in order to see whether they can beat the returns of a peer group. Up until 2020, there was no benchmark against which decarbonization progress of companies or countries could be measured.

The EU responded by creating Paris-aligned benchmarks. Its constituent companies have to meet stringent criteria, led by having a carbon footprint that is already 50% lower than the wider investment universe, and achieving a 7% reduction in the footprint every year after that.

Sector exposure is in line with the investable universe but fossil fuel companies are excluded, subject to certain thresholds. This means excluding virtually the entire oil and gas and utilities sectors.

Achieving true Paris alignment is not just an issue of removing high-carbon companies from an index or portfolio. The key parameter is whether they are on a trajectory to lowering the carbon intensity of their business models, for example by switching to renewable energy, or insulating their real estate to cut down on heat loss. The focus is on the pathway rather than current carbon levels.

Several investor groups have been set up to assist with evaluating companies’ progress on this transition. The Transition Pathway Initiative (TPI) is a global, asset owner-led program which assesses companies’ preparedness for the transition to a low-carbon economy and helps investors understand the level of ambition of corporate emissions reduction targets.

The Science-Based Targets Initiative (SBTi) is now extensively used by businesses. The group develop standards, tools and guidance which allow companies to set emission reductions targets and reach net zero by 2050 at latest. By 2025, its tools were being used by more than 10,000 companies, of which 7,100 had set science-based targets and 3,700 had made net-zero commitments. ²⁵

²⁴ https://assets.bbhub.io/company/sites/60/2020/10/FINAL-2017-TCFD-Report-11052018.pdf
²⁵ https://sciencebasedtargets.org/

While one answer to decarbonization lies in switching to renewable energy sources, that’s not so easy when there are still over 1 billion petrol-driven cars on the road, and so many economies depend on oil or gas.

It's also not just the energy supply side: ever-increasing demand for electricity from globally rising populations is also a problem. This can be seen in the Kaya Identify, a formula which says total future emissions are a function of four factors: population, GDP per capital, energy intensity and carbon intensity.²⁶ It means that CO2 will still go up if population growth exceeds improvements in energy efficiency achieved through technology.

Then there are the logistical constraints of electrifying the currently unelectrifiable present major obstacles. Aircraft, for example, cannot use batteries in the same way as cars, since none are currently powerful enough to provide the energy needed for take-off.

Buildings present another structural obstacle, since energy-inefficient buildings cannot be easily written off, demolishing them creates its own waste issues, and carbon capture technology has so far proven to be too expensive to retrofit on large existing industrial infrastructure.

Still, most fossil fuels can be replaced, and much hope rests in emission-free renewable energy. But this has two principal problems – its reliance on the natural forces that make it possible, and a lack of scale globally. Put simply, wind turbines won’t work if the wind doesn’t blow, and solar energy doesn’t work at night.

Figure 11: World electricity generation

Source: Worldometers.

Coal, on the other hand, is plentiful and can be burned in power stations night and day. World coal reserves in 2025 stood at more than 1 trillion tons, or enough to last for another 132 years at current extraction rates. The US has the world’s largest reserves, followed by Russia and Australia.²⁷

There are more than 1.6 trillion barrels of oil left in known reserves, or enough for 47 years at current consumption rates; Venezuela has over 1,000 years of national oil consumption left.²⁸ For natural gas, the country has 6.9 trillion cubic feet left, or 52 years supply at current consumption.

Renewable energy has come a long way in the last 30 years, when its share of global energy production has risen from under 10% to 26% in 2022. However, 27.6% of all global energy came from coal, 23.1% from natural gas and 30.2% from oil, according to the International Energy Agency.²⁹ This combined 81% share has remained stable at around 81% in the past decades, due to increasing global energy demand, even though the share of fossil fuels on total electricity supply has decreased from 67% to 60%.

Figure 12: The world energy mix

Source: International Energy Agency 2022.

From the investor perspective, the energy market changed completely after Russia invaded Ukraine, briefly but massively raising fossil fuel prices once sanctions were placed on Russian gas. This made energy companies among the best performers on stock markets, making it impossible for investors with a fiduciary duty to clients to earn returns to avoid holding fossil fuel companies in their portfolios. At the same time, returns on renewable investments dipped with the backlash against ESG and net zero, making sustainable investments less attractive.

Although it remains perhaps the best investment that any country could make, many are balking at the sums involved in tackling climate change. Estimates by Goldman Sachs in October 2024 suggest that USD 74.6 trillion of investment in infrastructure is needed to meet the 2 °C target, equivalent to three times US GDP. Of this sum, USD 29.4 or almost half trillion is seen as needed to expand renewable energy.³⁰

This implies USD 1.5-2 trillion of infrastructure spending per year until 2070 and includes USD 7 trillion for power networks, USD 5.1 trillion on energy storage, USD 9.3 trillion to make industrial processes carbon neutral, and USD 1.3 trillion for green hydrogen plants. While the numbers are astronomical, it also implies the creation of jobs and much-needed new infrastructure that will improve overall economic efficiency.

It is also important to remember the cost of not doing anything – there is no longer a ‘business as usual’ approach. The California wildfires of 2025 that destroyed much of upscale Los Angeles are estimated to have cost USD 200 billion, aside from the human cost of displacing people from their homes. ³¹

Therefore, we can’t afford not to invest the money, as the consequences are likely to be worse. Research by the US National Resources Defense Council suggests a failure to meet the Paris goals could cost the US economy up to USD 6 trillion in the coming decades, while a worldwide failure could reduce global GDP by more than 25% by the end of the century. ³²

Carbon pricing aims to curb emissions by putting direct costs on high emitters. However, current carbon prices are much too low and are far from making a global difference.

In 2024, only 24% of global emissions were covered by carbon pricing schemes, of which 19% were in ETS and 6% subject to direct carbon taxes.³³ The price placed on carbon ranged from USD 0.46 per ton of CO2e in Indonesia to USD 167 in Uruguay, which means only 1% of emissions are priced above the recommended level.³⁴

Research suggests that to meet the Paris goals, carbon prices should be USD 40-80 now, growing to USD 100-150 by 2030.³⁵ This level would put most companies in carbon-intensive industries such as steel and cement out of business.

Meanwhile, in 2024 there were only 75 carbon pricing initiatives in place around the world, consisting of 36 emissions trading schemes (ETS), including a large one for the EU, and 39 carbon taxes.³⁶ The current EU ETS carbon price is around EUR 61 tCO2e.³⁷

Figure 13: The state and trends of carbon pricing

Source: Worldbank, 2019

The chart above shows a comparison between a nation or region’s carbon taxes and their share of global greenhouse gas emissions. The Nordic nations have among the highest carbon taxes while remaining mid-sized emitters. California, once among the lowest despite being one of the world’s largest emitters, is now mid-table. China, now the world’s largest emitter, has among the lowest carbon taxes, though they have been rising. Japan’s carbon tax is close to the bottom despite being the world’s third-largest economy. ³⁸

Figure 14: Price of carbon around the world

Source: World Bank.

Finally, political will is crucial to combat climate change. This is what one of the architects of the Paris Agreement, Christiana Figueres, referred to as “distributed leadership”: everyone from president to pedestrian needs to work collectively toward a common goal. This requires strong leadership from governments, which has been rather lacking in deforestation, for example.

Many countries continue to spend billions in fossil subsidies, while new oil and gas fields continue to be licensed, boosted in the US by President Trump’s “drill, baby, drill” mantra of allowing more fossil fuel projects. Meanwhile, the ESG backlash and Congressional intervention in objecting to net-zero initiatives has considerably set back the global enthusiasm to tackle climate change, even as weather systems worsen, and as widespread deforestation continues.

Many investors feel that while investors and the markets can scale solutions, it is politicians who need to pave the road.

²⁶ https://www.sciencedirect.com/topics/engineering/kaya-identity
²⁷ https://www.worldometers.info/coal/
²⁸ https://www.worldometers.info/
²⁹ https://www.iea.org/world
³⁰ https://www.goldmansachs.com/insights/articles/reaching-net-zero-is-forecast-to-require-nearly-75-trillion-of-investment
³¹ https://www.theguardian.com/us-news/2025/jan/13/la-fires-wildfire-economic-losses
³² https://www.nrdc.org/stories/paris-climate-agreement-everything-you-need-know#sec-summary
³³ https://carbonpricingdashboard.worldbank.org/compliance/coverage
³⁴ https://carbonpricingdashboard.worldbank.org/compliance/price
³⁵ https://www.nber.org/system/files/working_papers/w28472/w28472.pdf
³⁶ https://openknowledge.worldbank.org/bitstream/handle/10986/33809/9781464815867.pdf
³⁷ https://carbonpricingdashboard.worldbank.org/compliance/price
³⁸ https://carbonpricingdashboard.worldbank.org/compliance/price

Climate change is a major risk for investors, but it also represents a multi-trillion-dollar market in the solutions for it. By seizing the opportunities this offers, investors can become part of the solution by actually mitigating climate change. By not seizing them, investors become part of the problem by furthering global warming and continuing to fund it.

The biggest opportunities can be seen in two key areas either side of the 2030 deadline for ramping up 2050 net-zero investment targets:

• Before 2030, these can be seen in existing technology: investing in efficiency, renewable energy and the electrification of smaller products such as cars and domestic appliances.

• After 2030, the focus switches to new technology: making heavy transport carbon-neutral by using green hydrogen for example, and through carbon capture.
  

Switching from fossil fuels to renewable energy is perhaps the most obvious and visible opportunity. The biggest growth has been away from biomass and hydroelectric power – used in some form for centuries – into wind and solar farms. Progress has been strong; renewable energy accounted for 30.3% of global electricity generation in 2023, up from 19.7% in 2010, although reliance on fossil fuels has remained largely unchanged.³⁹

With such a focus on the infrastructure needed for transition, the International Energy Agency’s ‘Net Zero by 2050 Roadmap’ estimates that to reach net-zero emissions by 2050 in pursuit of limiting global warming to 1.5 °C, total global investment in clean energy needs to more than triple by 2030 to around USD 4 trillion per year. ⁴⁰


Figure 15: The clean energy investment pathway

Source: IEA

Wind power has been the biggest new energy source, accounting for 8% of all global electricity generation in 2023, up from virtually zero in the 1990s. Much of this has been offshore; many of the world’s largest wind farms are now in the North Sea. ⁴¹

Aside from the energy potential, it also presents investment opportunities in the companies manufacturing the wind turbines, some of which are the size of skyscrapers. ⁴² Indeed, many investment opportunities lie in strategies that target the companies producing the materials and developing the technology needed, rather than the wind farms themselves.

Solar power has (literally) been another rising star, accounting for about 5.5% of global electricity generation in 2023, mostly due to installations over the past decade.⁴³ As with wind, much of the investment opportunity lies in the equipment makers, led by the photovoltaic panels used to capture the sun’s rays.

Figure 16: Renewable energy generation by source

Source: Our World in Data.
Note: ‘Other renewables’ refers to renewable sources including geothermal, biomass, waste, wave and tidal. Traditional biomass is not included.

Electrification offers another means of decarbonizing, with a switch from the internal combustion engines used in most forms of transport being an obvious win. The share of electric vehicles globally has risen from just 0.4% in 2014 to 15.8% in 2023.⁴⁴ As most major car makers have pledged to make their fleets electric by 2035-2040, the days of petrol-driven vehicles should be numbered by the middle of this century.

But it’s not just traffic: a more difficult task lies in electrifying buildings and the appliances within them. Many office blocks still rely on oil or gas to power their heating or air conditioning systems, while millions of homes have gas cookers, boilers and central heating systems. Low-voltage electric induction hobs are now seen as the most energy-efficient cookers for the home.

All this will massively increase demand for electricity, which will require huge investment to boost the size of national electricity grids. This is set to raise demand for conductive metals such as copper, aluminum and steel, offering further opportunities in commodity markets, though this also has a flipside in the environmental damage it can bring.

Hydrogen is a major development area that is seen as an effective alternative power source for commercial transport. It could potentially decarbonize long-haul freight fleets, including heavy-duty trucks and trains which use diesel; container ships which use highly polluting bunker fuel; and even some types of aircraft.

It also has the potential to decarbonize some hard-to-abate industrial processes such as fertilizer and steel production. There are three main hues to hydrogen: green, blue and grey, according to the production method.

Figure 17: How hydrogen is produced

Source: Straits Research.

For emission-free green hydrogen, electrolysis is used to break down water into its two component parts of hydrogen and oxygen. The liberated hydrogen can then be used in fuel cells. If renewable energy is used to power the electrolysis process, the resulting product is entirely carbon free.

The market has enormous growth potential, as currently only 1% of hydrogen produced is green.⁴⁵ Most is currently extracted from methane (CH₄), resulting in ‘blue hydrogen’ if carbon capture is used to trap the byproduct, or ‘grey hydrogen’ if it is not. Grey hydrogen is not seen as a viable alternative under a low-carbon scenario, since there is no net loss in emissions.

Figure 18: Hydrogen applications across the global economy

Source: The Fuel Cell and Hydrogen Energy Association (FCHEA), Roadmap to a US Hydrogen Economy (October 2020)

1. Carbon capture and utilization (for chemicals production)

2. Biofuel, synfuel, ammonia
   
   

Finally, many decarbonization hopes rest on carbon capture and storage (CCS). This is a complex three-step process of capturing emissions from a power plant or industrial facility, transporting it by pipeline or ship, and then storing it safely underground. This stops emissions from getting into the atmosphere in the first place. However, the technology is expensive and storing the captured carbon presents its own environmental concerns.

Most industrial facilities can be retrofitted with CCS technology, but it is cheaper to incorporate it in the manufacture of new plants. A combination of burning a biomass fuel and then using CCS can deliver so-called ‘negative emissions’, meaning that CO2 is actually removed from the atmosphere. This technology will become increasingly important over time to meet climate targets.

³⁹ https://www.statista.com/statistics/489131/share-of-renewables-in-power-generation-globally/
⁴⁰ https://www.iea.org/reports/net-zero-by-2050
⁴¹ https://www.statista.com/statistics/1302053/global-wind-energy-share-electricity-mix/
⁴² https://www.c2es.org/content/renewable-energy/#:~:text=Solar%20photovoltaics%20are%20the%20fastest,percent%20of%20the%20world's%20electricity
⁴³ https://www.statista.com/statistics/1302055/global-solar-energy-share-electricity-mix/
⁴⁴ https://www.statista.com/statistics/1371599/global-ev-market-share/
⁴⁵ https://straitsresearch.com/report/green-hydrogen-market

Investors have a role – some would say a fiduciary duty – in placing the money they control into transitioning companies. While most agree that low carbon represents the long-term future, the costs and risks of the transition toward that goal are not yet fully priced into the market. Being at the forefront of the transition therefore makes sense from a portfolio and risk management perspective.

Asset managers can do this in three main ways – through the integration of ESG factors into the investment process, by using transition finance, and through active ownership. This enables them to steer client money toward the more sustainable companies and avoid the laggards.

ESG investing has become mainstream, as almost half (46%) of investors in Europe now use it in some form.⁴⁶ The Global Sustainable Investment Alliance review of 2022 showed that USD 30.3 trillion is invested globally in sustainable investing assets. ⁴⁷

Figure 19: Global sustainable investing assets

Source: Global Sustainable Investment Alliance 2022.

While ESG integration will assess obvious issues such as company’s environmental record, carbon footprint, water use and waste management, the advent of net zero ushered in a new era of direct climate investing from the 2020s. The means by which investors can directly invest in climate products is discussed more fully in the next chapter.

Figure 20: Regional proportion of sustainable assets

Source: GSI Alliance 2022.

Robeco’s fifth annual Climate Investing Survey of 300 investors in 2025 showed another fall in investors prioritizing climate change, following a backlash against ESG investing and moves in the US against net-zero initiatives. The survey shows that the percentage of global investors for whom climate change is significant to their investment policy fell to 46% from 62% in 2024, dragged down again by declining interest in the US.

Commitments remain higher in Europe, where 62% of investors make climate change a priority, and in Asia-Pacific at 59%, dipping just below Europe in 2025 having been slightly higher last year. The core decline remains in North America, where only 23% of investors have climate taking center stage, further down from 35% in 2024. It means climate prioritization fell in all three regions, reflecting the rise in political opposition to the multi-trillion-dollar task of combating global warming.

Figure 21: The priority given to climate investing

Source: Robeco Global Climate Investing Survey 2025.

But it looks to be a temporary setback directly linked to the current political climate. Over half of respondents (56%) said that while Trump’s pro-fossil fuels and anti-clean energy agenda will hamper the net-zero transition, momentum will recover once he leaves office. A similar percentage (53%) said US government policy is likely to slow down their progress on decarbonizing portfolios, but only in the short term.

For investors, the focus has also changed away from pure-play sustainable investing toward transition finance. In short, transition finance means investing in less sustainable companies or projects to help them transition to lower carbon and more nature-positive business practices. This is different from sustainable investing, which largely targets companies that are already ‘green’ instead of looking for companies that are a work in progress – moving from ‘brown’ to ‘green’.

It is often said that if net zero is the destination, then transition is the journey. To achieve this, most investors use both a top-down and a bottom-up approach. Top-down looks for portfolio decarbonization, with a clear net-zero trajectory. The bottom-up approach means analyzing the companies (for stocks) and countries (for government bonds) that can facilitate this transition.

Identifying the transition leaders and laggards is crucial. Robeco uses a Climate Traffic Light tool to assess those portfolio companies whose business operations and net-zero policies are aligned with a 1.5 °C scenario (green); those which are work in progress and can benefit from encouragement, often through engagement (amber); and those which are unaligned and need to improve or risk exclusion (red).

Much private or state capital is also being directed toward either mitigating climate change, or adapting to it. According to the Climate Funds update, USD 1.5 billion has now been pledged to projects ranging from Amazon reforestation to programs scaling up renewable energy in emerging markets. ⁴⁸

Active ownership can be used as a tool to improve the climate readiness of companies, and their alignment with net-zero goals. As shareholders, voting can be a powerful weapon in expressing concerns with companies’ transition plans and in influencing change.

An increasingly popular tactic is to vote against the reappointment of key directors if a company has not done enough to improve their ESG performance. Another is to file shareholder resolutions on environmental topics, which is often used to force oil and gas majors to revisit contentious issues.

A new type of resolution emerged in 2021, the ‘Say on Climate’, in which companies present their energy transition strategy at their annual general meeting. Shareholders use their vote to express whether they think the company is on a sensible decarbonization trajectory. Most have so far been approved with overwhelming majorities.

Engagement is another means of seeking ESG improvements at investee companies. Under this process, a company agrees to talk over an investor’s concerns over a set period of time, often for up to three years. This has often proved effective in getting improvements in areas such as climate action, palm oil deforestation and single-use plastic or excessive waste.

Much engagement is being done on decarbonization programs, and the focus has widened in recent years to also target the financial institutions such as banks funding high-carbon companies, and not just the large emitters themselves.

Ultimately, investors can threaten to exclude companies that refuse to adopt lower-carbon practices, depriving it of external capital. This mix of engagement with the overhanging possibility of exclusion has persuaded energy giants to switch to lower-carbon business models led by renewables.

Since no investor can achieve much on their own, collaborations are increasingly seen as the way forward, since they allow investors to pool their resources in tackling a major issue in which they all have a vested interest. They also allow the engaged company to deal with one overarching group rather than have dozens of separate conversations on the same topic.

One of the largest is the Climate Action 100+ collaboration. Founded in 2017, this targets the world’s largest greenhouse gas emitters and encourages them to take action to decarbonize. Its effectiveness was quickly proven, as the group was behind a 2018 engagement which led to the oil giant Shell linking carbon reduction targets to executive remuneration for the first time.

Another influential body is the Institutional Investors Group on Climate Change (IIGCC), a European collaboration with more than 400 members across 27 countries. Founded in 2012, its members are mainly pension funds and asset managers with over USD 65 trillion in assets under management. ⁴⁹

Figure 22: The main principles of the net-zero roadmap

Source: Robeco, IIGCC.

In 2020, the IIGCC launched the Net Zero Asset Managers initiative to pursue the Paris goal of carbon neutrality by 2050. Its members have taken the Net Zero Carbon Pledge in which they promise to make all of their investment strategies carbon neutral by mid-century. This took a knock in 2024 when the US Congress questioned these pledges and many pulled out, though the wider commitment to the net-zero concept remains strong.

⁴⁶ http://www.gsi-alliance.org/wp-content/uploads/2019/06/GSIR_Review2018F.pdf
⁴⁷ https://www.gsi-alliance.org/members-resources/gsir2022/
⁴⁸ https://climatefundsupdate.org/the-funds/
⁴⁹ https://www.iigcc.org/our-members

Many of the solutions for climate change are coming from private enterprise. Companies are developing alternatives to fossil fuels and innovative means of decarbonizing the world. Most of these are open to investors who want to make returns while contributing to combating global warming.

Direct investment is usually done by the companies themselves. Most innovation is financed by corporate capital, from the invention of cars and mobile phones to the technology that has made solar panels possible.

Most investors prefer to invest in the stocks and bonds of the companies behind these innovations, rather than directly funding infrastructure such as solar plants, wind farms or carbon capture. Investors therefore tend to buy the securities of the operators of renewable energy infrastructure, and this includes the big oil companies switching into wind and solar.

Investing in climate-related strategies has grown in popularity, led by the themes of renewable energy, decarbonization, electrification and the move to a more circular economy. Scaling up electrical grids and switching to electric cars offers opportunities in strategies for the ‘smart’ energy, mobility and materials that target the new technology, processes and minerals behind them.

The circular economy theme focuses on a move away from the wasteful ‘take-make-and-dispose’ linear system to one that uses fewer resources and generates less waste. Much of the concept involves words beginning with ‘re‘: recycling, redesigning, reusing, refining, refurbishing and repairing. The aim is to make more efficient use of the Earth’s resources, as research shows that the linear model consumes finite resources at 1.75 times the planet’s annual regenerative capacity. ⁵⁰


Figure 23: How the circular economy offers opportunities

Source: Robeco graphics.

Impact investing offers another means of making both an impact and a financial return in the arena of climate change. It has grown in popularity since the advent of the UN’s Sustainable Development Goals (SDGs) in 2015, with more than USD 1.5 trillion of investor cash invested in bespoke impact funds in 2024, according to the Global Impact Investing Network (GIIN).⁵¹

Several of the SDGs target solutions to global warming, led by SDG 13 (Climate action), SDG 7 (Clean and affordable energy) and SDG 12 (Responsible consumption and production). Another two target healthy ecosystems, which are being damaged by unsustainable practices: SDG 14 (Life below water) and SDG 15 (Life on land).

Investment strategies have been created to buy the stocks and bonds of companies that can make a contribution to one or more of the SDGs. Robeco, for example, developed a proprietary SDG Framework which uses a three-step process to assess what the company produces, how it makes that product, and whether the company has been involved in any controversies, in order to calculate its overall net contribution. The resulting scores are used to pick securities for the SDG credit and equity portfolios.

Figure 24: The Robeco SDG Framework

Source: Robeco

Green bonds are another means of making an impact. These are debt securities, the proceeds of which are exclusively used to promote climate and environmental sustainability goals. For a bond to qualify as ‘green’, its proceeds should be used for projects with clear environmental benefits that can be quantified, such as renewable energy, reforestation or waste management.

They are typically issued by governments, agencies or supranationals, which means they can be bought across a wide spectrum. Disagreements about what actually constitutes an environmentally friendly project led the EU to establish a Green Bond Standard, a certification scheme aligned with the EU Taxonomy, which sets out the criteria for what is truly sustainable.⁵² To complement this, and provide surety for investors, Robeco has its own five-step methodology for assessing whether a green bond is truly green.

From small beginnings, the green bond market is now one of the largest in the world, with USD 3.5 trillion invested by early 2025, according to the Climate Bonds Initiative.⁵³

An array of investment products that specifically target decarbonization, pathways to net zero and renewable energy providers has emerged. Some target natural climate mitigation solutions such as reforestation, while others target technological solutions such as carbon capture and storage.

Bespoke climate funds often follow benchmarks uniquely designed to align the business activities of their constituents with the Paris Agreement. These typically create portfolios with a carbon footprint that is 50% lower than a standard benchmark, and then see a 7% decline in the portfolio’s footprint for each year after that. Fossil fuel companies are excluded.

Unfortunately, not everything is within investors’ reach: most of the world’s coal reserves, for example, are owned by governments, where exclusions won’t work, and many of the most unsustainable activities such as deforestation are done illegally. However, technology is helping to spot unauthorized tree felling using equipment such as ‘spy’ satellites and drones. The European Space Agency’s Sentinel-1 satellite, pictured below, can be used to detect deforestation.

Source: Getty Images

⁵⁰ https://www.robeco.com/en/insights/2020/10/investing-in-the-circular-economy.html
⁵¹ https://thegiin.org/publication/research/sizing-the-impact-investing-market-2024/
⁵² https://www.robeco.com/zh-hk/glossary/sustainable-investing/eu-green-bonds-standard
⁵³ https://www.climatebonds.net/

National efforts to replace fossil fuels with renewables lie at the heart of reducing global warming, since electricity generation accounts for 25% of all emissions.⁵⁴ This is particularly important for coastal countries that will disproportionately bear the brunt of rising sea levels if the issue is not tackled.

One nation at the forefront of this is the UK, where emissions have fallen by more than 40% since 1990, a higher level than any other country.⁵⁵ The UK’s commitment in April 2021 to cut emissions by 68% from 1990’s level by 2030 and by 78% by 2035 is also one of the highest in the world.

Part of this progress has been due to massive investments in offshore wind farms, including the world’s largest turbine field, the London Array in the North Sea. The UK is now the second-largest offshore wind market in the world, with four times as much capacity installed in 2024 than in 2012.⁵⁶ The biggest renewable contributor remains hydroelectric power which has been harnessed in Scotland since the 19th century.

These commitments have led to the UK being placed third on the Climate Change Performance Index 2025, an annual ranking of the climate mitigation efforts of 57 countries plus the EU, covering 90% of global greenhouse gas emissions. ⁵⁷

But there are caveats: one issue is that the 40% figure refers to territorial CO2 emissions and so does not include emissions from aviation, shipping and the carbon embedded in imports. If these numbers are included, the reduction falls to about 11% since 1990. ⁵⁸

Figure 25: Electricity generation in the UK

Source: UK National Grid. ⁵⁹

While investments in wind and solar power grab all the headlines, one increasing source of renewable energy comes directly from within the Earth itself – geothermal energy.

It is being used to great effect in Chile, where 15% of the world’s volcanoes and 8% of the world’s geysers are located. Heat from molten rock and underground springs can be converted into electricity; Chile’s potential geothermal capacity is about 16 gigawatts, enough to power five million homes. ⁶⁰

The country’s geography helps its renewables push in other ways. Wave power is being tapped from the tides along its 5,000 km coastline, while the Atacama Desert is the world’s driest place with the highest intensity of sunshine. The Vallenar solar plant in the Atacama Desert was the largest in South America when it opened in 2016. ⁶¹

In all, renewable energy now accounts for 60% of electricity production in Chile, the highest level in Latin America. ⁶² This has led to it being placed ninth on the Climate Change Performance Index 2025.

Figure 26: Renewable energy capacity is growing exponentially in Chile

Source: BNamericas

One sector at the forefront of transition is the auto manufacturing. With 1.5 billion vehicles on the road accounting for 14% of all emissions, electrifying them would make a substantial contribution toward meeting the Paris goals. ⁶³

Some major car makers have pledged to switch to electric fleets by 2040, while legislation in some countries will make new gasoline-driven cars illegal by 2050. Norway aims to become the first country to ban the sale of fossil fuel cars in 2025,⁶⁴ while the UK plans to do so in 2035, having delayed the date for five years due to the cost-of-living crisis. ⁶⁵

An engagement program coordinated by the IIGCC in 2018 sought firm commitments from car makers for the first time, and it achieved several breakthroughs. Volkswagen and Daimler each set a long-term ambition of achieving net-zero emissions by 2039 and 2040 respectively. Volkswagen went as far as to bet on a single technology – opting for battery-powered electric vehicles – the first car maker to have done so. Others are opting for hybrids, fuel cell, hydrogen or a mixture of technologies.

While the established carmakers are slowly switching from the combustion engine, the new kids on the block are the pure-play, electric-only automakers. Two global companies now lead the pack.

The Chinese firm BYD has become the world’s largest electric carmaker, now producing 4.3 million vehicles a year, with total revenues of CNY 602 billion (USD 83 billion) in 2023. Based in Shenzhen, the company was founded as a battery maker in 1995 under the Chinese name Biyadi. It morphed into BYD, branded as ‘Build Your Dreams’ for advertising in the US.

US automaker Tesla made 1.8 million electric vehicles in 2024 and had revenues of USD 97.7 billion. As one of the Magnificent Seven of mega-cap US tech stocks, its market value joined the exclusive USD 1 trillion+ club in 2024.

Its soaring market value since its foundation as a start-up in 2003 has made CEO Elon Musk the world’s richest man with a fortune of more than USD 200 billion. Tesla’s market value is also higher than all the other traditional US carmakers combined; its nearest rivals Ford and Volkswagen both have market values of less than USD 50 billion.

Engagement can be highly effective in changing business models at companies still overly reliant on fossil fuels. Many are lagging in their efforts to transition toward lower-carbon operation. Therefore, Robeco opens dialogs with them as part of the Climate Action 100+ collaborative engagement group of international investors.

The core engagement ask is for companies to set a clear a net-zero ambition with workable targets and a clear decarbonization strategy. Two companies where we have co-led CA100+ engagements in the high-emission energy sector are:

The Czech energy utility CEZ is one such company with significant coal exposure. At the start of the engagement, the company had unambitious emissions targets and lacked a coherent climate transition plan that indicated how the energy mix would evolve to reach net zero by 2050. The company had planned to phase out coal by 2050, but did not have a credible pathway for doing so.

After two years of engagement, in December 2023, CEZ adopted 1.5 °C-aligned targets for 2030 that were externally verified by the Science-Based Targets Initiative (SBTi) and brought forward its net-zero target to 2040. The company also brought forward its commitment to phasing out thermal coal to 2033 from 2038, and the share of coal power capacity has decreased from 8 GW in 2021 to 4.3 GW in 2024.

The company’s climate transition plan now outlines the expected energy mix by 2030 and the required investments to deliver the energy transition.

Another company that needed a push in decarbonization was TotalEnergies. We have engaged with the French energy and petrochemicals group on developing a transition plan for many years, and the company is now by far the largest producer of renewable energy among its peers, with low-carbon energy a growing portion of revenue.

However, despite significant progress, the company’s emissions trajectory is misaligned with low carbon scenarios, primarily due to significant gas expansion keeping absolute emissions high. Recent engagement has focused primarily on Total’s decarbonization strategy, particularly the resilience of ongoing capex on oil and gas projects and climate lobbying.

As a result, Total has a well-established transition plan and has not backtracked on it, unlike some peers. We have also engaged with the company on broader issues, such as human rights, community engagement and biodiversity. This included visiting a controversial project in Uganda to understand the company’s approach to these issues, and how they link to climate change.

⁵⁴ https://www.epa.gov/sites/production/files/2016-05/global_emissions_sector_2015.png
⁵⁵ https://www.gov.uk/government/news/uk-enshrines-new-target-in-law-to-slash-emissions-by-78-by-2035
⁵⁶ https://www.great.gov.uk/international/investment/sectors/offshore-wind/
⁵⁷ https://ccpi.org/ranking/
⁵⁸ https://www.carbonindependent.org/32.html
⁵⁹ https://grid.iamkate.com/
⁶⁰ https://www-pub.iaea.org/MTCD/publications/PDF/cnpp2016/countryprofiles/Chile/Chile.htm#:~:text=Installed%20power%20generation%20capacity,systems%20(SEA%20and%20SEM)
⁶¹ https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Archive:Chile-EU_-_statistics_on_energy
⁶² https://www.statista.com/statistics/1262922/chile-renewables-share-electricity-mix/
⁶³ https://www.thedrive.com/guides-and-gear/how-many-cars-are-there-in-the-world
⁶⁴ https://www.bbc.com/news/articles/cg52543v6rmo
⁶⁵ https://pod-point.com/guides/2035-diesel-and-petrol-car-ban-in-the-uk-everything-you-need-to-know

1. Climate change is the long-term alteration of temperatures and weather patterns that will threaten life on Earth unless it is combated. It has been addressed by successive international protocols that led to the Paris Agreement in 2015. Emissions targets were then set by the Intergovernmental Panel on Climate Change.
   
   

2. Only by slashing greenhouse gases can we achieve the Paris goals. Governments have responded by setting national targets for emissions cuts culminating in net-zero pledges to become carbon neutral in most cases by 2050. Investors are tackling high emitters by means of engagement and by setting their own net-zero pledges for portfolios. Regulators are raising the bar with new rules.
   
   

3. Climate change presents a double materiality issue for investors, in that global warming impacts investments and vice versa. This means it is necessary to combine a top-down and bottom-up approach. There are significant investment opportunities in a focus on transition. Aligning investments with the Paris Agreement and scientifically backed pathways can help meet goals.
   
   
   

4. While combating climate change is vital, there are still many obstacles to overcome. Replacing plentiful coal, oil and gas resources which can be burned 24/7 with less reliable renewable energy is an uphill struggle. Carbon pricing is too low and not widespread enough to work properly, and the cost of replacing infrastructure is an impediment for lower-income countries. The political will is needed to stop things such as fossil fuel subsidies and deforestation.
   
   

5. For the solutions available, renewable energy offers the crown jewels in decarbonization, followed by enormous potential for green hydrogen for more difficult-to-abate industries such as heavy transport. The rise of electric cars is part of a wider electrification drive involving a range of investible new materials and minerals. Carbon capture is another potential solution, but it is expensive to retrofit existing infrastructure.
   
   

6. Investors have a major role to play. There is a clear duty to steer capital toward companies committed to decarbonization, through ESG integration and via direct climate finance. There are increasingly more transition finance-targeted companies. Active ownership through voting and engagement can bring welcome change, and collaborations are increasingly successful in targeting high emitters.
   
   

7. The means of investing in climate solutions have expanded. Some target clear trends such as renewables and electrification through thematic investing. Impact investing offers a more specific means of targeting goals such as the SDGs. Green bonds issued for environmental projects are growing in popularity, as are strategies that follow Paris-aligned benchmarks.
   
   

8. Progress is being made on a country, sector and corporate level. Two countries have become world leaders in renewables: the UK (wind) and Chile (geothermal). Engagement has brought change to the gas-guzzling auto sector as it converts to electric vehicles, as two titans have emerged in the EV market. Engagement is helping to wean energy firms off fossil fuels.

If you have absorbed all this information, you are ready to take the test.