Impact investment and sustainable data will become more standard practices, but who would have thought that even the FED is considering running "climate stress tests"?
Recently, we posted a list of 2021 trends seen by Pinterest. Most trends were about lifestyle, decoration, travel, fashion. It's time now to see what a renowned bank, UBS, is thinking about 2021 and the trends in sustainable finance, based on an interesting piece that their "Hub for Sustainable Finance" published in the last few days.
These trends - check the entire list here - go well beyond banking and finance. They also show that the financial sector is now finally embracing things like net-zero emissions, sustainable data, or impact investment, a sign that these will now become a must for companies and investors, not an option.
I found two trends particularly interesting.
UBS is talking about "big oil reinvention". Big oil & gas companies might be the only players on the market who have enough money to make the required investments (in trillions) to develop the energies of the future. Check here for the detailed analysis by UBS. Therefore, the future energy mix will not happen without the "big oil", which might, by the way, in the process, become simply "big energy". This means that the Green Transition is not so much an existential threat to big oil than a great opportunity to reinvent themselves. As UBS puts it: "rather than viewing the energy transition as an existential risk to the oil majors, and they as the problem, we should perhaps regard it as a potential opportunity for them to remake themselves as initially a hybrid and then increasingly a fully-fledged integrated energy industry, and to thus become part of the solution". That will be interesting to see what happens now with American big oil after the U-turn made by the Biden administration about the Paris agreement.
Another one is about "climate stress testing". I found it very interesting that UBS brings that up. As they put it: "climate transition analysis and stress testing of loan books and investor portfolios are about to go mainstream". Two years ago the Bank of England was the first to announce they would run a climate stress test and now 18 central banks - including the European Central Bank (ECB) - will run these types of stress tests in 2021. A network was created by Central Banks and supervisors, the Network for Greening the Financial System (the NGFS). Interestingly, the FED has applied to join that network and may to its own test in the next few years. As the UBS analysts say: "the bottom line is this: investors and financial institutions want and need to get smarter in managing climate-related risks and opportunities". You can check the full UBS analysis here.