May 28, 2022

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Letter: Investors want COP26 to agree climate terminology

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Clarity matters. A fund using the climate or environmental, social and governance moniker in its name should demonstrate its particular focus on those considerations in public disclosures to investors.

There are a range of approaches to cutting carbon intensity and to improving ESG profiles. Efforts to bring transparency should illuminate differences in these approaches rather than conflate them.

Unfortunately, the recent research by the group InfluenceMap (“Climate-themed funds often fall short of Paris goals, says think-tank report”, Report, August 27) does the latter, confusing the varied investment strategies that underlie many funds.

Of the 130 funds the group’s analysis labelled as “climate-themed”, most don’t stipulate alignment with global temperature targets for the stocks they select. The analysis includes only four of the roughly 15 exchange traded funds in the market that are benchmarked to indexes designed to align with such thresholds. (The ETFs align positively, our analysis shows.) Yet it included 593 ESG funds without regard to whether those funds include climate considerations in their mandates. Most don’t.

To avoid apples-to-oranges comparisons, we call on policymakers at COP26 to advance a common language for climate-themed investments. We urgently need metrics built on standards that help investors make more informed decisions when choosing how to further global climate goals.

Linda-Eling Lee
Global Head of ESG Research, MSCI
New York, NY, US