0. 37 0. 05 0. 17 0. 36 p4 0. 19 n / a 0. 18 p5 0. 55 n / a 0. 34 0. 34 p4 n / a 0. 02 p3 n / a 0. 33 n / a p2 p5 n / a p4 0. 26 p3 0. 22 p1 n / a p5 0. 47 0. 19 p4 p4 0. 28 p3 0. 22 p3 n / a p2 p3 n / a p1 p2 n / a p5 p2 0. 40 p4 p2 0. 25 p3 p1 p2 p1 p1 p1 p5 greenhouse gas emissions a key decision for investors is whether to make use of the raw climate data disclosed by firms, or packaged summary measures from ratings providers, such as those illustrated in chart 4. summary measures have obvious attractions, since they delegate to specialists the daunting task of data gathering, analysis, gap - filling and aggregation. but in so doing they also risk injecting further inconsistencies : fully half of the variation in the aggregate ratings shown at the top of chart 4 reflects decisions on the composition or weighting of those aggregate measures, as opposed to variations in how firms ’ raw disclosures are measured. a recent paper from the bank of italy suggests that investors can construct better - performing portfolios by combining the raw data themselves. 25 the final tcfd criterion is that disclosures should be forward looking. this is particularly important for capital markets, because a climate asset ’ s value will be determined far more by where it is going, than by where it has been. faced with the choice between assets from two companies, one with relatively low current emissions but no investment plans, and another with relatively higher current emissions but aggressive and credible future plans to lower them, an asset allocation strategy based exclusively on current results drawn from https : / / mitsloan. mit. edu / ideas - made - to - matter / why - esg - ratings - vary - so - widely - and - what - you - can - do - about - it https : / / www. researchgate. net / publication / 342550204 _ mind _ the _ gap _ machine _ learning _ esg _ metrics _ and _ sustainable _ investment all speeches are available online at www. bankofengland. co. uk / news /

from hot air to cold hard facts : how financial markets are finally getting a grip on how to price climate risk and return – and what needs to happen next speech given by andrew hauser, executive director, markets investment association, london 16 october 2020 i am grateful to benjamin bowry for his help in writing this speech, and to andrew bailey, imane bakkar, bethany blowers, sarah breeden, mark cornelius, eleanor eden, amber evans, sarah hall, andrew harley, ronan hodge, sarah kemmitt, zane jamal, theresa lober, arjun mahalingam, tom mclaren, jenny owladi, dave ramsden, andrea rosen, tom silvester and mathieu vital for their comments and guidance. all speeches are available online at www. bankofengland. co. uk / news / speeches and @ boe _ pressoffice introduction 2020 is not the likeliest of years for the green revolution to have started paying off in financial markets. with a global pandemic raging, and economic uncertainty at historic highs, issuers, investors and intermediaries might have been forgiven for having their minds elsewhere. but, in fact, after many years of rhetoric from market practitioners, the temperature has changed noticeably. hot air is turning into cold hard fact : - climate oriented equity indices have outperformed the broader market by 2 - 5 % in 2020, as economic activity has shifted away from travel and other fossil fuel - intensive sectors, and towards online commerce and technology ( chart 1 ) ; - green bonds also outperformed their conventional counterparts over that same period ( chart 2 ), and made up a fifth of total european investment grade issuance in september alone. and companies such as vw and daimler secured material reductions in financing costs ( or ‘ greeniums ’ ) when issuing their first green bonds, linked to the development of low - emission technologies ; - governments have been increasingly persuaded of the powerful direct and indirect effects of issuing their own ‘ sovereign green bonds ’ too, with a raft of countries coming to market for the first time this year : germany ’ s innovative dual - bond issuance was five times oversubscribed and commanded a clear greenium ; and the european commission announced that it will fund 30 % of its €750bn ‘ next generation ’ budget in the same way ; 1 - more and more investment money is massing on the sidelines. funds with above - average sustainability ratings have seen big inflows this year,