- Ridgway 1956

The CAPM (Capital Asset Pricing Model) has long been the ‘signal box’ for investment flows and the ‘risk free rate’ at its core requires adjustment to reflect climate and environmental risks inherent in corporate activity. Firms must be penalised and incentivised for their behaviour as it resonates in their impact on the world in which they operate – in a holistic sense. Capital has to date been allocated on a ‘carbon-footprint’ agnostic basis, which is no longer plausible intra-generation and beyond. Tough wholesale change will be painful but required. More difficult to implement, given the standard of living implications and the current regional offenders vs points in national economic development. There is a requirement for inter-nation/continent pay-away, hard in normal times but more so in the current geo-political scenario. Expertise and honesty are required in equal measure.

Navigating these ever changing and uncertain waters is becoming increasingly perilous – as each week passes, more regulation and doctrine emerges and it’s not always clear which is the most relevant to any particular company’s approach.  In the UK, the need for listed entities to adopt TCFD in their reporting is only the beginning – those with a US presence may be required to accommodate the SEC regulations, and those in Canada etc.  You can see how this might evolve.

Whilst the ISSB endeavours to unify standards (see this piece from our colleagues at Acasta), the current onerous landscape provides for an arduous journey. 

You might consider my thoughts a little myopic from a Capital Markets standpoint – they’re not meant to be, rather an eye-opener to what might lie ahead.  And my colleagues at Acasta are on hand to help you with the tiller as you sail these stormy waters...