The Race to Net Zero – Don’t Hit Snooze Again

The Paris Agreement prescribes making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. Financial institutions have a problem here with neither direct nor complete control over their investees’ emissions, let alone the significant reductions required to meet the pledge of net zero. Fiduciary responsibility to maximize returns today leaves investors struggling to lower emissions of their investments beyond current regulatory requirements and the real economy.

In particular, governments need to step up their game; large patches of societies are ready for significant changes as long as such changes are embedded in honest, rudimentarily positive visions of our joint future. The same is true of course of corporates and their investors: Constructing net zero portfolios through shifts to low-emitters and proven transitioners turns out rather difficult given that e.g. more than 75% of MSCI ACWI Investable Markets Index constituents decarbonized by less than 10% p.a. over recent years.

This raises serious doubts about achieving set targets and accountability thereof. We spoke about ESG as part of our last newsletter; let’s talk about ESG funds for a minute. Criticism ranges from bunching up mostly contradictory objectives to being guilty of greenwashing, offering very little environmental benefit while misleading investors. Ouch! But no surprise there really. Pursuing truly low-carbon strategies force investors to concentrate risk in a few sectors, thus risking financial underperformance.

Sectors with hard-to-abate emissions remain critical to economic growth while helping to transition to a carbon-neutral economy. Such companies represent an opportunity for investors to finance leaders to net zero while achieving superior returns. It is not necessarily a contradiction for investors to hold more carbon intensive portfolios, if everything is done to abate emissions, while using superior returns to pay for credits to achieve net zero.

Several groups convened by the World Economic Forum and the World Business Council for Sustainable Development have developed tools aiming to go beyond internal decarbonization trajectories by investing in high integrity credits to offset residual emissions on an annual basis. Financial institutions and their clients can do the same. Project Samsø can help. But how so?

Our infrastructure will, firstly, improve today’s carbon emission and offset verification and certification processes. Secondly, the resulting reliable and compliant footprints fuel the novel and automated conversion of existing securities into Carbon Linked Securities (CLS).

Think of CLS as a traditional financial instrument with a built-in component offsetting companies’ remaining gap to their carbon net-zero balance, financed by public investors. The CLS solution allows us to convert any security into a clean, carbon-neutral investment for those investors.

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Do not hesitate to contact us via our official channel or any team member for questions concerning this update or any other area.

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About Strategy Partners LLC

Strategy-Partners LLC is a strategic designer of workflows and solutions for a Carbon Neutral Ecosphere. The firm assists with establishing unified accounting of carbon emissions and offsets with third-party verification and ongoing validation. Strategy-Partners is led by a team of financial securities veterans and data experts based in the U.S.  For more information, visit www.strategy-partners.net

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About KALYP Technologies LTD

KALYP Technologies, a provider of enterprise software in the financial markets with its distributed ledger-based software, establishes smart market infrastructure for institutions and enables more efficient digital processing. The firm is independently financed and led by a group of securities industry veterans and distributed ledger technology experts with an international presence between London and Boston. For more information, visit www.kalyp.com

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Important Information

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for decisions based on such information, and it should not be relied on as such.

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Sources

• UN Convened Net- Zero Asset Owner Alliance. Position Paper on Governmental Carbon Pricing. June 22
• MSCI. Constructing Net-Zero Portfolios: Three Approaches. September 2022.
• Financial Times. Jonathan Guthrie. April 2022. ESG is a category error that needs unbundling.
• Financial Times. Laurence Fletcher and Joshua Oliver. February 2022. Green investing: the risk of a new mis-selling scandal
• NCS Alliance Investment Accelerator
• Opinion: ESG falling short? Low carbon funds overvalued? High integrity carbon credits offer a bridge to net zero finance. Rupert Edwards. October 2022.