Global Climate Anomalies Change Investment Landscape... 'Decarbonization' Becomes the Trend in International Investment

Saudi Arabia's Top Oil Producer Stock Exchange Develops Environmental Index
Major International Investors and Pension Funds Compete to Declare Decarbonization
China Raises 15 Trillion Won for Green Fund Investment in Just Two Weeks

[Image source=Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] As unprecedented floods hit East Asia this summer and the world suffers from abnormal weather, environmental factors such as climate are emerging as important variables in international investment. Saudi Arabia, the world's largest oil-producing country, announced the development of an environmental index on its stock exchange, and pension funds, known as major players in the global financial market, have successively declared 'decarbonization.' The size of socially responsible investment (ESG) funds investing in eco-friendly companies has also grown more than fivefold in the past five years, recognizing environmental issues as essential elements for sustainable growth.

According to foreign media including CNBC on the 18th, the Saudi Tadawul Stock Exchange recently decided to create an environmental index by the first quarter of next year in cooperation with the global index provider MSCI. This index is planned to include more than 70 Saudi-listed companies. The Tadawul Exchange is also reportedly planning to establish low-carbon environmental guidelines for Saudi-listed companies.

It is ironic that Saudi Arabia, boasting the world's largest oil reserves, is showing interest in low-carbon and environmental indices, but this can be interpreted as accepting the changes of the times. This is because abnormal weather has a significant impact on the economy. According to the United Nations Office for Disaster Risk Reduction (UNDRR), the annual global damage from natural disasters, which was about $20 billion until the 1990s, increased sharply to $210 billion last year.

In the international financial market, corporate decarbonization to reduce climate change has already become a hot topic. According to the UK BBC and others, at the end of last month, the UK's largest pension fund, the National Employment Savings Trust (NEST), declared decarbonization and announced that it would invest ?5.5 billion (about 8.491 trillion KRW), more than 45% of its total assets under management, in eco-friendly companies within the next five years. By 2050, all companies involved in oil and coal mining and oil drilling in the Arctic will be excluded from investment targets. Mark Fawcett, NEST's Chief Investment Officer (CIO), emphasized, "The COVID-19 pandemic and severe climate change pose serious risks to investment," adding, "We must not leave a devastated world to those who will retire in the future."

Pension funds, major players in international investment, have been declaring decarbonization one after another since last year due to climate change. The Norwegian Government Pension Fund Global (GPFG), known as the world's largest pension fund with assets under management exceeding $1 trillion (about 1,189 trillion KRW), excluded coal, oil, and natural gas drilling companies from its investment targets starting March last year. Following this, the California Public Employees' Retirement System (CalPERS), Sweden's pension fund (AP), and the Netherlands' pension fund (APG) also announced last year that they would exclude companies whose carbon emissions account for more than 20% of their sales from investment targets.

Climate change is emerging as an important investment factor not only for pension funds but also across international investment as a whole. According to the 2020 Foreign Direct Investment (FDI) Confidence Index report by global consulting firm A.T. Kearney, which surveyed 500 global investment firms, 77% of the investing companies recognized climate change as a risk factor that would significantly affect investment decisions over the next three years. A.T. Kearney stated, "The damage from Australia's wildfires, which occurred from late last year to early this year due to abnormal weather caused by climate change, reached $110 billion," and forecasted, "If climate change worsens, by 2025, about 30% of the world's Gross Domestic Product (GDP) could be at risk of loss due to abnormal weather."

As awareness of eco-friendly development to prevent climate change expands, investments in ESG funds focusing on eco-friendly energy such as electric vehicles, solar power, and wind power are also increasing significantly. According to China Securities Network, China's first ESG fund, the National Green Development Fund, raised 88.5 billion yuan (about 15.0414 trillion KRW) within two weeks after its launch last month. Globally, the inflow of funds into ESG funds has grown more than fivefold from $2.8 billion in 2015 to $17.6 billion last year.

This content was produced with the assistance of AI translation services.