- Environmental, social, and governance (ESG) considerations are essential in assessing climate risks and the management of carbon-intensive assets.
- Regulatory and market forces are driving the adoption of ESG considerations in the extractives sector.
- Large extractive companies are selling off carbon-intensive assets to transition to a low-carbon economy.
- Access to reliable data is crucial for assessing climate risks embedded in portfolios and determining which companies are effectively managing them.
- Regulators are exploring climate-related financial disclosures to facilitate more efficient pricing of risk and the transition to a sustainable economy.
- Institutional investors are increasingly considering ESG factors in their capital allocation decisions.
- ESG considerations are influencing credit ratings, access to bank debt, and insurance coverage for legacy oil, gas, and mining assets.
- Private equity firms are also embedding ESG considerations in their investment processes.
- Climate change legislation and regulation, mandates, and underlying market/economic factors are impacting the value of legacy oil, gas, and mining assets.
- ESG data is indispensable in assessing and managing climate risks during the transition to a low-carbon economy.
Environmental, social, and governance (ESG) considerations play a crucial role in assessing and managing climate risks associated with carbon-intensive assets and the transition to a low-carbon economy.
Large extractive companies are selling off their carbon-intensive assets as part of their efforts to transition to a low-carbon economy. However, assessing the economic impacts of these transactions requires access to relevant and reliable data, especially since the purchasers are often private entities, making information hard to obtain.
Regulatory and market forces are driving the adoption of ESG considerations in the extractives sector. Stricter regulations aimed at accelerating the transition to a low-carbon economy have heightened risks associated with certain business activities while creating potential opportunities for others. Additionally, the economics of alternative energy sources, such as wind and solar, have become more competitive relative to fossil fuels.
Relevant and reliable data on climate risks and management strategies is critical for capital markets to assess the financial implications of transitioning to a low-carbon economy. Disclosure requirements and reporting standards are being established to ensure the efficient pricing of risk and the transition to a more sustainable economy.
ESG factors are increasingly influencing capital allocation decisions across various sources of funds. Credit rating agencies are integrating ESG considerations into fixed-income ratings, while asset managers face regulatory scrutiny regarding their “green” investment vehicles. Asset owners are also making ESG commitments and scrutinizing the climate exposure of bank lending portfolios.
Access to bank debt, credit ratings, and insurance coverage may pose challenges for buyers of legacy oil, gas, and mining assets as the financial system adapts to the transition to a low-carbon economy. The insurance industry, in particular, is reevaluating its coverage of fossil fuels due to climate change-related issues and the switch to renewable energy.
The value of legacy oil, gas, and mining assets is also influenced by carbon taxes, caps, mandates, regulations, and underlying market and economic factors. As governments worldwide ramp up efforts to address climate change, legislation and regulation could significantly impact businesses, both positively and negatively.
ESG data is essential for assessing and managing climate risks during the transition to a low-carbon economy. Reliable and accessible ESG data provides a foundation for informed decision-making by investors and other providers of financial capital across public and private markets.
