Climate change mitigation should be viewed as business opportunity, says London Stock Exchange

Businesses and investors should focus more on measuring and reporting the positive impacts of sustainability efforts rather than purely analysing the risks posed by climate change, according to the sustainability manager of the London Stock Exchange Group.

Speaking at a Climate Disclosure Standards Board (CDSB) event in London on Monday (9 April), Sara Lovisolo said the economic opportunities offered by sustainable business practices are often overlooked.

“There is a lot of talk about climate risks and negative impacts, but if we want to measure and track the transition to a low-carbon economy, then we also need to measure the opportunities,” Lovisolo said. “It is in the TCFD [Task Force on Climate-related Financial Disclosures] framework, but the technical work behind the opportunities is weaker than measuring mitigation.”

The establishment and subsequent recommendations of the TCFD has led to numerous investors and banking groups beginning to view their portfolios through the lens of potential climate change impacts. Scenario analysis encourages businesses to create a “well-established method for developing strategic plans that are more flexible or robust to a range of future states”. Through the analysis, businesses can evaluate a range of climate-related scenarios, including a 2C scenario to explore physical, strategic and financial risks and opportunities that could emerge.

Lovisolo believes that this new financial framework offers an opportunity for businesses to “harmonise” how companies report on financial and climate-related information. She called on corporates to translate the opportunities of the low-carbon transition into “technical” data that investors can understand and act on.

Data collection

The London Stock Exchange Group operates a range of international equity, bonds and derivatives markets including London Stock Exchange, Borsa Italiana and the pan-European equities fund Turquoise. Lovisolo wants these markets to be able to use technical data to increase access to finance for sustainability products.

“We are looking for forward-looking information,” Lovisolo added. “In the future, we will see scenario analysis and all of the climate-focused information go technical. Turning something so elusive like environmental damage and climate change into something that is technical and can be implemented in a systematic way will help us map and perform against new indexes.

“We don’t have the technical data yet, but once the technical data gets measured, it gets budgeted and then it gets managed. That’s where we all have to get to.”

Monday’s CDSB event saw the Board launch an updated version of its reporting framework for environmental and natural capital data, which is now aligned to the TCFD recommendations. The CDSB Framework is currently used by companies with a combined market value of more than $5trn and offers businesses ways to map their decarbonisation plans against various future pathways envisioned by the Paris Agreement.

Matt Mace

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