Action on climate critical: MSCI report

The study results come amid fears that 2023 could be the hottest year ever recorded for the globe, partly due to El Nino climate conditions.


An aerial photo of Sanjiangyuan National Park in Northwest China's Qinghai province. [Photo provided to China Daily]

June 27, 2023

BEIJING – Urgent efforts are needed to mitigate global warming as any extreme warming scenario could lead to significant costs for listed companies and investors, especially when it comes to the utilities and energy sectors, said experts from global index and analytics company MSCI.

“We need to take immediate action to ensure that we remain on track to limit the temperature rise within 1.5 C above preindustrial levels by 2100,” said He Siyao, Asia-Pacific ESG and climate research analyst at MSCI.

ESG stands for environmental, social and governance.

“The corresponding requirement aims at almost halving global greenhouse gas emissions by 2030 compared to 2010 levels. The window of opportunity to realize such a transformation is rapidly closing,” He said.

She also said that losses among listed companies resulting from extreme temperatures would be significantly larger in the scenario of a 5 C warming as opposed to the 1.5 C scenario, which was the goal set by the Paris Agreement.

Based on a recent MSCI study, the discounted cost induced by extreme temperatures would be equivalent to 10 percent of Chinese utilities listed companies’ market value in the 5 C warming scenario, much higher than 0.8 percent in the 1.5 C warming scenario. For the energy sector, the figure is 1.8 percent in the 1.5 C scenario but 9.2 percent in the 5 C scenario.

Also, financials, telecommunication services and real estate, which may not be largely affected under an orderly 1.5 C transition, become sensitive to extreme global warming under the 5 C warming scenario, where their projected market value losses increase tenfold compared to the 1.5 C warming scenario.

The study results come amid fears that 2023 could be the hottest year ever recorded for the globe, partly due to El Nino climate conditions. In China, high temperatures above 35 C have been scorching the northern part of the country this month, sending shares of power companies rising as demand for electricity spikes.

An index tracking power industry-related shares rose 2.09 percent to close at 4283.68 points on Monday, bucking a decline in the A-share market, with the benchmark Shanghai Composite Index shedding 1.48 percent to close at 3150.62 points, the lowest level since early January, according to market tracker Wind Info.

While the MSCI study focused on Chinese companies, He said global companies also face the same magnitude of potential losses.

“Given that climate change and climate disasters are global issues, Chinese enterprises or industries do not have any special distinctions.”

She called for listed companies to enhance their awareness of the risks of extreme temperatures. They should incorporate adaptation plans to extreme temperatures into their climate strategies and assess the potential costs of extreme temperatures.

More important, proactive actions are needed to prevent any extreme warming scenario and avoid the resultant significant losses, He said, adding that Chinese companies have made positive progress in this regard as their disclosures of carbon emissions reduction goals and advances have been “rapidly rising”.

Companies that take the lead in the mitigation of global warming may be favored by long-term institutional investors such as sovereign funds and pension funds, said Xu Shuo, executive director of China Research at MSCI.

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