Those who can quickly adapt and navigate the evolving global landscape of the climate transition theme will be more likely to capture market share and maintain a competitive and investable advantage.
In the simplest terms, transition investing provides financing to support progress toward net zero or removing the creation of greenhouse gases. Instead of removing support through divestment, transition investing covers investments in high-emitting and hard-to-abate sectors (i.e., steel and concrete) that require substantial financing to implement their climate strategies and lower emissions.
Net zero means cutting greenhouse gas (GHG) emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere by oceans and forests. It is about achieving a balance between the GHG emissions produced by human activity and those removed from the atmosphere. The path to net-zero investing means supporting companies with ambitious carbon reduction goals and compensating for remaining emissions that cannot be mitigated using carbon removal technologies.
Carbon markets are a growing sector where emissions credits are purchased and sold and derivatives are traded. Carbon credits are a commoditized product that permits companies to legally emit greenhouse gas—at the rate of one ton of CO2 or GHG per credit. The credits enable carbon to be tracked and traded like any other commodity. Ultimately, the carbon markets incentivize companies to reduce their GHG emissions in two ways: they must spend money on extra credits if their emissions exceed their allowance or they can make money by reducing their emissions and selling their excess credits.
The Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board (FSB), has developed a framework to help public companies and other organizations more effectively disclose climate-related risks and opportunities through their existing reporting processes.
TCFD focuses on the main categories of governance, strategy, risk management, metrics and targets.
The International Sustainability Standards Board is responsible for developing sustainability disclosure standards to provide a truly global baseline of sustainability disclosures to further inform economic and investment decisions. The better information investors have, the better investors can act in supporting economic and investment decision-making.
RBC climate blueprint
RBC lays out its climate strategy in the RBC Climate Blueprint, which shares some of the important ways that the organization is making progress and taking action through four key areas of focus:
- Help clients as they transition to net zero: Aiming to empower clients on their journeys with solutions, products and advice.
- Holding RBC accountable: Setting goals and targets and measuring progress to help keep on track. RBC has committed to achieving net-zero emissions in its lending by 2050.
- Inform and inspire a sustainable future: Action starts with knowledge. RBC shares insights and ideas to help communities, governments and organizations build better solutions.
- Advance net-zero leadership in RBC operations: Committed to reducing RBC’s global emissions by 70% and sourcing 100% of electricity use from renewable and non-emitting sources by 2025.
Investors — both institutional and retail — are increasingly aware of the role they can play in the transition and the integration of environmental, social and governance (ESG) data into portfolios through responsible investment.
For information about RBC’s commitment to reach net zero by 2050, ask your financial advisor for RBC’s Climate Report 2022 and Net-Zero Report.