The Surge in Climate Risk Reporting – Visual Capitalist

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The following content is sponsored by the Carbon Streaming Corporation
 

An average of $2.5 trillion—or 1.8% of global financial assets—would be at risk from climate change if global temperatures rise over 2.5℃ by 2100.
Given that climate change imposes a risk to the world’s assets, reporting on climate-related risks and opportunities is becoming front and center for organizations amid growing pressure from investors and governments.
The Task Force on Climate-related Financial Disclosures (TCFD), created by the Financial Stability Board (FSB) in 2015, provides a global framework for such disclosures. This graphic sponsored by Carbon Streaming Corporation charts the rapid growth in support for climate risk reporting under the TCFD framework.
The number of organizations supporting TCFD has grown five-fold in just three years, at an average annual rate of 73%.
As of 2021, over 2,600 organizations supported the TCFD framework, with a combined market capitalization of $25 trillion. These organizations span 89 different countries and jurisdictions, highlighting the global support for climate risk reporting.
Additionally, 1,069 or nearly 41% of these TCFD supporters are financial institutions, responsible for $194 trillion in assets.
Furthermore, support for climate-related disclosures will likely continue to grow, especially with the introduction of legislation enforcing them. In 2021, the G7 countries backed introducing mandatory disclosures under the TCFD framework for large organizations and/or certain sectors. Many countries including the UK, Japan, New Zealand and Switzerland are targeting to have mandates in place before 2025.
The Canadian Prime Minister, in his sessional mandate letters to his deputy prime minister and environment and climate change minister, instructed them to move towards mandating climate-related disclosures in line with TCFD in December 2021.
In March 2022, the Securities and Exchange Commission (SEC) in the United States unveiled proposed regulations that would require companies to disclose their greenhouse gas emissions, as well as their exposure to climate-related risks.
In addition, authorities in several regions including the European Union, Brazil, and Singapore have proposed mandatory TCFD disclosures for certain sectors.
Emissions reporting is an important component of the metrics and targets recommended for disclosure under the TCFD framework.
Climate change can pose several risks to companies and can impact how they operate their business and value their assets. Companies that do not disclose this information to investors risk reduced demand for their products or services due to shifting consumer preferences or a reduction in available capital as investors turn to more climate-friendly assets. Investors are seeking more information about the effects of climate-related risks on a company’s business so that they can make informed decisions.
Consequently, companies are facing increased pressure to announce plans to address their emissions, and carbon credits can play an important role as companies work to decarbonize their operations.
By purchasing carbon credits, companies can help fund projects that will reduce emissions today as they implement their plans to reduce or eliminate emissions since this often takes time to execute. Demand for carbon credits has increased over the past few years, with the voluntary carbon markets surpassing $1 billion in value for the first time in 2021.
Carbon Streaming Corporation is focused on acquiring, managing and growing a high-quality and diversified portfolio of investments in projects and/or companies that generate or are actively involved, directly or indirectly, with voluntary and/or compliance carbon credits.
Where does this data come from?
Source: TCFD Status Report, 2021
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Is $1 million enough to buy you a luxury home? As this infographic shows, the answer varies greatly from city to city.
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“There are three things that matter in property: location, location, location”
Those are words from Harold Samuel, a British real-estate mogul from the 1900s. Broadly speaking, it’s a quote that still holds true—property values in the world’s best cities have always been worth a pretty penny.
The scarcity of real estate is driven by trends such as urbanization, which is the migration of people into cities. While the first examples of cities were built thousands of years ago, it was only recently that the majority of the population began to live in them. In fact, the urban population just overtook the rural population for the first time in 2007.
Of course, certain cities simply hold more appeal for wealthy people, and as a result, competition in the prime real estate market can be fierce.
To learn more about the sky-high cost of prime property in cities, this infographic visualizes data from Knight Frank’s Prime International Residential Index (PIRI 100).
The following table lists the number of square feet that you could buy with one million dollars in various cities. We’ve included more cities on this list than in the graphic to create a more comprehensive comparison.
Monaco, the most expensive city on this list, is incredibly land-constrained with an area of just 0.78 square miles. For context, New York’s Central Park is 1.31 square miles in size.
In second place is Hong Kong, which has become notorious for its difficult real estate market. Just 7% of the city is zoned for residential use, which pushes many of its citizens into sub-100 square feet micro apartments. These housing units offer grim living standards and are often referred to as “coffin homes”.
On the other side of the spectrum, Hong Kong recently set the record for the most expensive home in Asia. A 3,378 square foot penthouse sold for $59 million in 2021, translating to $17,500 per square foot.
You may be wondering what prime real estate is.
Knight Frank defines it as “the most desirable and expensive property in the area, generally defined as the top 5% of the market by value.” This suggests that the prices visualized above are on the upper end of the scale, and that more attainable homes are available.
» If you’re interested in urbanization, consider this infographic which ranks the 20 largest cities in the world.
Where does this data come from?
Source: The Knight Frank Prime International Residential Index (PIRI 100)
With the Ukraine crisis unfolding and rising interest rates on the horizon, investors are moving out of U.S. equity funds.
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Investors are bracing for several interest rate hikes amid a Russia-Ukraine war.
In February, U.S. equity fund flows hit $48 billion, a 70% decline from the year before. In the previous month, U.S. equity fund flows hit their lowest level since the pandemic began.
With data from Morningstar, we show how the invasion of Ukraine and a rising rate environment has affected U.S. equity fund flows.
In January, investors shed a record $23 billion from large growth funds, the highest level since 2017. This trend continued in February as investors sought out lower-risk investments.
Growth stocks historically tend to outperform when interest rates are declining. When the price of capital is low, companies borrow and expand operations at a lower cost.
The reverse is true when rates rise, putting pressure on corporate earnings and equity valuations. In March 2022, the Fed raised interest rates for the first time since 2018.
Growth funds also tend to be more volatile during market selloffs. So far in 2022, the Cboe Volatility Index (VIX) is up more than 40%.
Large blend funds saw the highest inflows, at $38.5 billion, while large cap value funds saw a moderate $15.8 billion in inflows.
Unlike growth funds, value funds tend to outperform when interest rates are rising. Over the last decade, growth funds, marked by low-margins and high valuations have shown stronger performance than value.
Which U.S. equity fund sectors saw the highest inflows and outflows?
Energy, consumer defensive, and natural resources—all typically cyclical, value-skewed sectors—saw the highest inflows at $1.7 billion, $1.0 billion, and $0.8 billion, respectively. Gas prices in the U.S. have hit record prices amid supply pressures from the war.
Meanwhile, investors withdrew $1.9 billion from technology sector funds in February, the highest out of any sector category. Year-to-date, technology sector funds have seen almost $7 billion in net outflows.
As investors veer away from growth sectors, they are flocking to safer assets, like money market funds as the humanitarian crisis in Ukraine unfolds.
Where does this data come from?
Source: Morningstar February 2022 U.S. Fund Flows Report, March 2022.
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