Policymakers increasing see public policy shifts as a contributor to climate transition risks for a good reason, as the analytical materials below indicate.
Consider the dilemma that sustainable finance corporate leaders face on a daily basis. They seek to improve disclosure regarding a range of sustainability progress points (including, but not limited to, limiting their carbon footprint) and they seek to attract capital from investors dedicated to creating positive incentives by rewarding responsible climate action.
But every disclosure creates potential legal and regulatory risks, especially if those disclosures occur on financial statements and regulatory filings. Worse still: the binding regulatory requirements are a moving target.
In many key jurisdictions (like the European Union, the United States, the United Kingdom), the relevant rules are changing. Clarity on level one disclosure requirements may not emerge until well into 2023 and beyond. Level two requirements such as climate-related macroprudential standards will not likely emerge until mid-decade.
Ironically, firms that provide the most robust disclosures may be subject to accusations of greenwashing. The more information they provide, the more fodder they generate for critics. Today's disclosures may also create the foundation for legal and regulatory action tomorrow as rules change. The incentives to do nothing are powerful; the risks of discontinuous or destabilizing outcomes are far from small.
Investors increasingly will evaluate corporate exposure to greenwashing accusations and regulatory/compliance risks as financial regulatory and disclosure standards evolve, potentially exerting downward pressure on certain equity and fixed income securities as the policy-related risks come into focus.
The sustainable finance landscape will thus remain messy for a number of years as regulatory and litigation cycles chart a jagged path through the climate transition. Understanding this delicate dynamic has prompted a number of key policymakers to conclude that public policy shifts contribute to climate transition risks in the near- to medium-term.
Fortunately, our award-winning patented technology provides a framework for assessing policy-related risks exposures in this context as the risks emerge. Sustainability investors and analysts no longer need to wait for the final rules to be issued. They can use concrete, objective momentum data to identify the trajectory towards a final decision and adjust their portfolio holdings accordingly using our tickerized CRRM3 (3-D Climate Related Risk Measurement) data.
Strategic investors can chart risk exposures relative to the overall climate disclosures process
or they can pinpoint their focus to greenwashing policy
and now that the data has been tickerized to tradeable assets, they can draw a direct line to specific ETFs focused on sustainability and other sectors materially exposed to shifts in regulatory requirements regarding climate-related disclosures
Nowcasting and scenario analysis can now incorporate direct, concrete, objective factors capturing the evolving risk profile regarding policy-related climate transition risks as the rules emerge.
BCMstrategy, Inc. helps portfolio managers, strategists and advocates identify public policy inflection points faster by delivering to them objective data generated by an award-winning, patented process. We increase transparency regarding government processes by converting official sector words into momentum and volatility measurements, increasing the speed with which they connect the dots. For human readers, we also deliver highlighted PDFs that help them speed-read their way through the most dense policy documents.