Carbon Metrics Alone Limited in Managing Risks and Opportunities of Net-Zero Transition

According to a survey of leading investment professionals conducted by WTW, a leading global advisory, broking, and solutions company, carbon metrics alone lack the forward-looking insights needed to assess the financial risks and opportunities of transitioning to a low-carbon economy.

Source: WTW | Published on October 10, 2022

Companies committed to ESG

The vast majority of survey respondents (85%) rejected carbon metrics as the best way to assess the financial risks of the net zero transition to their investments. The survey, which was conducted at a session during New York Climate Week last month, focused on progress in measuring and managing climate transition risk.

Respondents also identified the most significant barriers to broader adoption of environmental, social, and governance (ESG) principles in their investment portfolios. The availability of tools and metrics to accurately measure transition risk (41%), and a lack of conviction that ESG integration will improve long-term performance (41%), ranked first and second, respectively.

In an effort to meet net zero targets, regulators worldwide are increasingly requiring investors to disclose their climate-related financial risks and companies to report their carbon emissions.

"Investors are hungry for data on how climate risks impact investment outcomes," said Diya Luke, WTW's growth acceleration leader. We now have forward-looking metrics that shed light on all of the financial risks associated with climate change across industries. This includes calculating the difference between current market expectations of future cash flows and those under various climate change scenarios. This represents a significant advancement in understanding the impact of the net zero transition on businesses, portfolios, and even countries. These metrics go beyond current carbon metrics and will assist capital in aligning with net zero."

Climate QuantifiedTM is WTW's suite of forward-thinking climate data and analytical tools that will help with this transition. It includes the most recent physical risk models as well as the ground-breaking Climate Transition Value at Risk methodology, which assists companies, investors, and governments in identifying and managing the risks and opportunities associated with a climate transition.

"The high and rising costs of climate change necessitate a new economic toolbox," said Heather Boushey, a member of the White House Council of Economic Advisers. These tools stem from the realization that increased information can assist in identifying and addressing vulnerabilities in our economy and financial system. They present an opportunity to steer the market to strong and sustainable economic growth both during and after the transition.

"We look forward to working with and learning from the private sector as we work together to address the climate crisis." While the Biden administration recognizes the challenges that lie ahead, it also sees this as a chance for meaningful reform."

The Climate and Resilience Hub's Mission

The Climate and Resilience Hub (CRH) serves as the focal point for WTW's climate expertise and capabilities, bringing together knowledge from our people, risk, and capital businesses, as well as our collaborations, to deliver climate and resilience solutions in response to a variety of regulatory, investor, consumer, employee, and operational pressures. We provide analytics, advice, and transactions under the Climate QuantifiedTM brand to enable corporate, financial, and public sector institutions to embrace the climate decade ahead.

About WTW

We offer data-driven, insight-led solutions in the areas of people, risk, and capital at WTW. We help organizations sharpen their strategy, improve organizational resilience, motivate their workforce, and maximize performance by leveraging the global perspective and local expertise of our colleagues serving 140 countries and markets.

We uncover opportunities for long-term success by working side by side with our clients—and provide perspective that moves you.