ESG (Environmental, Social and Corporate Governance) investing has been gathering steam at an unprecedented rate in the last few years, with environmental sectors now four times larger than the manufacturing sector and many ESG-focused funds outperforming counterparts. There are a number of converging factors (not to mention the imminent existential crisis that is posed by global warming) that are forcing the hands of companies, investors and individuals worldwide to prioritise ESG for the long-term. We are deeply convinced that ESG is not a fad, quite the contrary: it's the only way to provide for our children and build a better future for all humanity.
ESG initiatives are increasingly important with regards to pressure from governments, regulation as well as stakeholders. Users and customers are demanding from their brands that they act responsibly and give them a way to offset their activities. A lack of robust ESG investment hurts public image and consequentially, drives prices down. The world suffered $US 210B in damages from natural disasters in 2020 alone and ESG controversies wiped half a trillion $US off the value of US companies in 2018.
The pandemic and enforced lockdowns of the last eighteen months have given us a collective moment to pause and consider the damage that has already been done to the planet, and how we might reverse it. Whilst the lockdowns resulted in an estimated 7% decline in carbon emissions globally, this is said to be a mere drop in the ocean and a rebound is inevitable as we return to growth economies. This dip in global carbon emissions was down to momentary behavioural change rather than the long-term structural changes necessary to solve the problem. Promisingly, it is clear that this wake up call has energised CEOs to double-down on the changes observed during COVID-19, with 71% of them saying they want to lock in climate change gains that have been realised during the pandemic, and a fifth of the world's largest companies pledging to carbon neutrality by 2030.
The health of the planet is of course front of mind, but there is an an important financial incentive for organisations and investors to prioritise ESG. In 2020 alone, the world suffered $210B in damages from natural disasters, and it is estimated that natural disasters could cost 20% (or $100B more annually) by 2040, according to researchers at the University of Cambridge.
However, ESG incentives have received a bad rap over the last few years, with ESG controversies wiping half a trillion $US off the value of US companies in 2018. However, a culture of credibility is being reinstated, with 72% of investors surveyed in a recent EY research paper saying that they carried out a structured review of ESG activity, compared with only 32% two years prior.
The global carbon market was valued at $272b in 2020, with a track record of 20% CAGR year over year since 2017. Looking at only the voluntary segment of the projections alone, this number is estimated to grow to $50b by 2030. We are sizing our preliminary segment of market share by the size of crypto companies which need to urgently meet carbon-net zero status, which is an estimated $3m per annum in the first instance.
We know that there still exists significant barriers towards collective contribution to the carbon credit market and that trust and accountability need to be re-injected into the fabric of this vital industry. This is our mission at Carb0n.fi, as we work with essential carbon offsetting projects to tokenize their digital assets and make it easier, safer and more transparent for organizations, investors and individuals to trade their carbon credits on a decentralized exchange.
Let's face it. Environmental, Social and Governance (EGS) systems are critical in combating climate change. In context, it has a considerable impact on return and risk for investors. However, it is frustratingly complex to build good ESG ratings because industries are different, and emission rates differ.
While the outbreak of Covid19 has slowed down the global response to climate change, there has been notable momentums for a major change in the net-zero emission announcement from corporations and governments. Some of these target announcements include about 73% of global emissions being covered. Additionally, there are more than 87 global signatories with about US$37 trillion in assets under management under the Net-Zero Asset Managers initiative.
To achieve the projected climate results, we need to attach a price to emission. As already established, both Emissions Trading Scheme (ETS) and Carbon Taxes are essentially designed as a price-based incentive for emission reduction.
Attaching a price to Green House Gas (GHG) emissions is critical if we are to achieve the changes necessary to alter projected climate outcomes. There are two main approaches to providing price-based incentives to reduce GHG emissions:
Carbon Tax A tax rate on GHG emissions or the carbon content of fossil fuels. With a carbon tax, the carbon price is defined, but the level of resulting emissions reduction is undefined. Data aggregation, availability, and reliability have been identified to hamper the growth of ESG. Climate data need to be harmonized, decentralized and accessible even to the commoner. Capital markets and new data emerge. Global effort on climate change needs an open, decentralized ecosystem network as core equity needs to be adaptable, upgraded, and flexible to incorporate new data. There are robust approaches for investors to respond in their portfolios, supporting Carb0n.fi is one of them.