Get a soft copy of our cheat sheet
Headed to Climate Week NYC? Here is your cheat sheet of the latest numbers on the low-carbon transition. It may not get you across Midtown but it will give you the lowdown on climate finance for the conversations to come.
The MSCI Sustainability Institute will be convening key leaders from finance, government, academia, business and civil society at Climate Week to unblock barriers to transition finance and take stock of investors’ expectations for future climate pathways. (You can learn more about our events here.) We’ll also be exploring investment opportunities in climate adaptation and resilience with our collaborators the Global Adaptation and Resilience Investment working group. Join us!
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It’s the heat
2024 is rivaling last year as the hottest year on record. Average global temperature for the 12 months ending in August was the highest ever recorded — 1.64°C (3°F) above preindustrial levels — for any 12-month period, according to EU Copernicus. (The Paris Agreement aims to constrain warming to 1.5°C (2.7°F)).
- Over 5 billion people this year — nearly one-fifth of the planet’s population — have endured at least one day where the heat index topped 39.4°C (103 °F), the threshold considered life-threatening, The Washington Post reports.
Companies not where they need to be
Listed companies are likely to burn through their share of the global carbon budget for limiting the rise in average global temperatures to 1.5°C (2.7°F) by October 2026, according to the MSCI Sustainability Institute’s latest Net-Zero Tracker.
- Nearly two-thirds (62%) of listed companies are on a trajectory that would warm the planet by more than 2°C (3.6°F) above preindustrial levels, while 11% align with projected warming of 1.5°C (2.7°F), as of May 31, 2024, based on MSCI’s Implied Temperature Rise metric.
- Emissions from listed companies contribute about 20% of global greenhouse gas emissions (Scope 1).
- Just over one-fifth (22%) of listed companies have set a decarbonization target to be in line with a science-based pathway, as of May 31, 2024, an increase of eight percentage points from a year earlier.
Source: MSCI Sustainability Institute, data as of May 31, 2024
The energy supply picture
Fossil fuels supplied 60% of total energy demand globally last year, according to the latest Statistical Review of World Energy.
- Renewables (solar, wind and hydro) accounted for 30% of electricity generated in 2023; if you include nuclear, low-carbon energy provided about 40% of electricity generated last year.
- Renewables accounted for nearly 86% of new global electricity generation capacity in 2023, according to data from the International Renewable Energy Agency.
- China added 55% of all renewable generation capacity in 2023; more than the rest of the world combined.
Global electricity generation in 2023
Source: MSCI Sustainability Institute, based on data from the Statistical Review of World Energy.
The energy demand picture
Global consumption of energy reached a record high of 620 exajoules (17 x 104 terawatt hours) in 2023, up 2% from a year earlier. (An exajoule is 24 million tons of oil equivalent.)
- CO2 emissions from the combustion of fossil fuels is by far the largest source of energy-related greenhouse gas emissions, contributing around 81% of the total.
The Global South accounted for 56% of the world’s total energy consumption.
- The Asia-Pacific region was responsible for 85% of the Global South’s demand (and 47% of global demand).
- Electricity demand in North America and Europe, meanwhile, fell -1% and -2.4%, respectively, from a year earlier.
Global primary energy consumption in 2023
Source: MSCI Sustainability Institute, based on data from the Statistical Review of World Energy.
Progress check
Renewable energy capacity is expected to reach 8,000 gigawatts by 2030, or about 27% short of the roughly 11,000 GW of global power generation that would be required to meet the global goal of tripling global capacity from 2022 levels by 2030, the International Energy Agency reported in June. The IEA says:
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- Advanced economies need to increase generation capacity to a growth factor of 2.5x from its current 1.9x.
- Emerging and developing economies should raise the growth factor to 3.4x from 2.4x.
The investment opportunity
- The world’s biggest investors overwhelmingly say that climate change is the sustainability issue most likely to affect the performance of investments in the next two to five years, a survey published this year by Stanford’s Graduate School of Business and the MSCI Sustainability Institute finds.
- Investment in clean technologies and infrastructure in the U.S. totaled nearly half a trillion dollars (USD 493 billion) in the two years ending June 30, 2024, up 71% from the two years that preceded the Inflation Reduction Act, according to data compiled by Clean Investment Monitor.
Which sustainability issues do you believe are most likely to affect the performance of an investment over the next 2 to 5 years?
Source: Stanford-MSCI Sustainability Institute survey
Since passage of the Inflation Reduction Act, listed companies upstream from the power-generation value chain (including clean-energy equipment manufacturing, batteries, electric-vehicle components and mineral processing) have announced more than USD 137 billion of investments in areas where the act offers manufacturing and investment incentives, finds MSCI ESG Research based on data as of Sept. 6, 2024.
- Battery-storage-related investments accounted for two-thirds (66%) of this, followed by electric-vehicle components (16%) and solar-panel parts (12%).
Tracking climate-friendly investment
Source: MSCI ESG Research, data as of Sept. 6, 2024
Exits from renewables by private capital groups have yielded higher returns than exits from oil and gas in each of the eight years ended Dec. 31, 2023, according to data from MSCI ESG Research.
Returns from exits by private capital groups
Source: MSCI ESG Research, based on 1,403 unique exited holdings in 419 unique private-capital funds, as of Q4 2023
Transition funds are on the rise, reports MSCI ESG Research, which notes that funds aiming to capitalize on the shift to a low-carbon economy managed more than USD 50 billion as of March 31, 2024, with 70% of those funds launched in the last four years.
Top transition funds by size
Source: MSCI ESG Research, based on holdings as of March 31, 2024
The financial costs of climate change
- Global GDP would be 7-10% less by 2050 than in a world without climate change if average temperatures were to rise 2°C (3.6°F) to 2.6°C (4.7°F), according to data from the Swiss Re Institute, which notes that floods, tropical cyclones and storms made more destructive by climate change cause expected losses of USD 200 billion annually currently.
- Costs from extreme heat could rise 4x for listed companies in aggregate, if global temperatures rose 3°C (5.4°F) from preindustrial levels, compared with a 1.5°C (2.7°F) warming scenario, MSCI ESG Research finds.
- 41% of company locations globally are exposed to at least one flood type (from extreme rainfall, from rivers overflowing their banks, or from high tidal water and storm surges), data from MSCI GeoSpatial Asset Intelligence shows.
- Climate change will make the world about 19% poorer in the next 26 years compared with a world that were not warming, estimate scientists at the Potsdam Institute for Climate Impact Research.
- These damages, which are irreversible, are 6x larger than the cost of mitigation needed to limit global warming to 2°C (3.6°F).
