Five themes for 2024
Theme 4: From the transition of regulation to the regulation of transition
Our fourth theme for 2024 looks at how sustainability regulation is beginning to promote tangible progress on climate transition.
This year we are reaching a point where we think sustainability regulation is moving from fatigue to functioning.
Fatigue has been driven by the unintended consequences of a complex and burdensome “create and explain” regulatory approach for several years. We believe this was stifling investment in transition and even prompted the advent of “greenhushing” – where companies keep quiet about their sustainability efforts to minimise litigation risks.
But now, while global consensus on core methodologies and key performance indicators (KPIs) may still be some distance away, we have entered a more pragmatic “storming” phase in various regions.
The bottom line: progress is being made.
The arrival of the UK’s Sustainability Disclosure Requirements proposals, discussions on the ASEAN Taxonomy in southeast Asia, and the recent adjustments to the European Union’s Sustainable Finance Disclosure Regulation have prompted the first stages of consensus-building on core elements of promoting sustainable finance.
Focus on transition
Increasingly, the concept of “transition finance” – which supports the decarbonisation of high-emitting companies and activities – is being formalised into sustainable investing frameworks.
This is critical because the transition concept reaches across the multiple pillars of sustainable investing – from environmental, social and governance (ESG) approaches to impact investing.
The notion of moving from brown to green has greater global resonance over an opaque definition of being green.
However, a key hurdle for transition is to make the implementation equitable. Otherwise, the risks for the most vulnerable regions and communities could be compounded.
So it was encouraging to see the launch of a Glasgow Financial Alliance for Net Zero consultation on transition finance strategies was complemented by initiatives around the concept of “just transition”.
At Allianz Global Investors, through investment initiatives like the Emerging Markets Climate Action Fund and our involvement in the One Planet Sovereign Wealth Fund Network, we have already been developing transition strategies in our private markets business.
We already have formal decarbonisation transition strategies for our public markets investments, and we are reviewing ways to expand the offering, utilising the data and methodological capabilities developed in recent years.
