Asset owners and money managers must take steps now if the global temperature rise is to be kept below 2 degrees Celsius, MSCI said.
In a call to action, MSCI said addressing the impact of climate change "will require the largest reconstruction of the global economy since the Industrial Revolution."
Capital markets participants need to be a powerful and positive force to drive the necessary transformation in markets in order to avert "climate catastrophe," MSCI said.
About 9,000 publicly listed companies in its All Country World Investible Markets index, which have a total market value of more than $70 trillion, emit an estimated 11.2 gigatons of carbon dioxide equivalent — a metric used to compare emissions based on their potential to cause global warming. Without any changes to current practices, annual emissions could reach 16.8 gigatons of carbon dioxide equivalent by 2050, leading to a 3.5-degree Celsius increase in global temperatures by the end of this century, an by MSCI analysis showed.
The firm has identified a number of steps that companies, asset owners and money managers must take to achieve a net-zero economy by 2050. Asset owners must reallocate capital to less emission-intensive investments and green solutions; should target a year-over-year decarbonization of portfolios that allows for a drop in the world's total emissions by 10% per year; and move to policy benchmarks that help portfolios to move toward net-zero emissions.
Money managers need to use their voting rights and direct engagement with companies to urge them to align with net-zero targets; should support owners of capital by increasing their expertise to fund clean energy; and should develop risk management and reporting expertise in line with the recommendations of the Task Force on Climate-related Financial Disclosures, MSCI said.
For companies, there is a need to set emissions targets to reach net-zero by 2050; to articulate credible and specific strategies related to such reductions; and to incorporate best practices for reporting and disclosing data and initiatives they undertake.
Banks also have a role to play, MSCI said, in terms of supporting business with capital to invent and scale clean energy; and to drive developments in corporate lending, corporate debt and equity issuance related to net-zero objectives.
MSCI will publish a quarterly net-zero tracker, showing the aggregate temperature alignment of the MSCI ACWI index with a 1.5-degree Celsius target for global temperature increases. It will also highlight companies and sectors making the greatest progress in the move toward net-zero, as well as naming and shaming laggards.
The current trajectory "is not a path to net-zero," said Henry A. Fernandez, chairman and CEO, in a news release accompanying the call to action. "Capital markets are an essential and critical force to drive the transition to net-zero with concerted action from all participants, ranging from a reallocation of capital by asset owners, to effective channeling of funds by asset managers and banks to greener investments and innovation, alongside the commitment of companies."