Moneycontrol Pro Panorama | ESG investing is catching on. But play with care

The headline finding is that global temperature on an average could reach or exceed 1.5 degrees Celsius of warming within 20 years. In the coming decades, at 1.5 degrees, it warns of “increasing heat waves, longer warm seasons and shorter cold seasons” and at 2 degrees, we could see “heat extremes would more often reach critical tolerance thresholds for agriculture and health”. We are already seeing extreme weather events play out all across the world, although one may not be able to draw a direct link between them and climate change.

But the report makes it clear that there is a near-linear relationship between cumulative carbon dioxide emissions and global warming. And, the report says achieving net zero global carbon emissions is required for stabilising carbon dioxide-induced global surface temperature increase, with emissions getting balanced by carbon removal.

This report provides more scientific basis for the governments that have stitched a global coalition of the biggest economies to fight climate change. While developed countries are pushing for quicker and stronger measures, the developing world finds itself in a difficult situation and wants financial assistance from developed countries to switch to a low carbon-intensity economy. There is also the additional challenge for India, which uses taxes on fuel to fund many of its social programmes and it will have to find new avenues of income to fund them.

While governments may be slow to change, the world will put pressure on business and finance to reach a net zero state. The interconnected nature of global business and finance makes this possible. This could mean ensuring that ESG funds are actually investing in companies that fit the criterion, and that companies that claim ESG status actually can show proof of the same. Already, a move is afoot to revamp how companies and funds report ESG metrics. The coming years will see these changes being implemented. Before blindly investing in ESG causes or paying more for ESG stocks, do your due diligence so that you are not caught on the wrong foot.

Today’s FT selection (free to read for Pro subscribers) is on how companies that have bought carbon offsets may be at risk if the assets (such as a forest) they have helped fund are taken down by fires or other natural disasters. It calls for transparency on accounting for carbon reduction by companies, a first step in the goal to reach net zero. It is one thing for all companies to carry statements professing care for the environment and big goals that are 20 or 30 years away, but if this is not followed by action, then it is of little use to a heating planet.

Investing insights from our research team:

Aptus Value Housing Finance — Should investors bet on this pricey IPO?

Chemplast Sanmar IPO: More a commodity than speciality product

Indian Hotels: Is it the best stock to play the recovery theme?

Thermax: Business trajectory good, but valuation appears to be stretched

Steel Authority of India Ltd: More steam left?

A soft patch in the growth journey of Gabriel

Why look at AU Small Finance Bank when the going is tough?

What else are we reading today?

GuruSpeak | Jakera Choudhury talks on how to use basic technical and fundamental screeners to make money consistently

Economic Recovery Tracker | Mobility, power use hold up, but jobs weaken

Rooftop solar power — Plug the policy loopholes

Top tribunal vacancies can curb the right to access justice

Soda ash cycle turns for Tata Chemicals, but the wait for battery business plan is on

Technical Picks: M&M, HDFC Bank, Godrej Consumer and Lupin

Ravi Ananthanarayanan

Moneycontrol Pro​