The understated future of decarbonisation commitments

Welcome back!
 

As Climate Week in New York draws to a close, one theme has been impossible to ignore: the fragility of corporate decarbonisation pledges. Amid investor scepticism, political backlash, and shifting regulations, promises to reach net-zero risk sounding less convincing. Against this backdrop, Professor Marcin Kacperczyk (Imperial) will deliver the ECGI Wallenberg Lecture in Brussels on 6th November under the theme “Decarbonisation Commitments: Signals, Substance, or Spin?”.

Professor Kacperczyk's research has demonstrated that financial markets respond not only to the size of decarbonisation promises, but also to their credibility. In our interview this month, he reflects on why decarbonisation commitments are proving unstable, how market and political dynamics interact, and what these developments mean for the future of corporate governance and sustainable finance.

An interesting takeaway from the interview is the concept of pooling equilibria—when serious and less serious firms become indistinguishable in the eyes of investors, both reduce their visible commitment (e.g. to Net-Zero alliances), and the overall signal erodes. As a result, researchers may need to seek out new signals to differentiate credible plans.

It's not theoretical either. In the first quarter of this year, a record amount of $8.6 billion was withdrawn from sustainable investment funds globally, followed by a rebound in the second quarter—a shift Professor Kacperczyk cautions us not to over-interpret. This retreat, along with with mixed messaging from companies about net-zero timelines and varying regulatory ambition across Europe, suggests we are still navigating a highly unfavourable environment for net-zero goals.

While credibility matters, whether for disclosure verification, portfolio rebalancing, or firm commitments to net-zero, a weak disclosure environment and an uncertain investment environment may also be consequential for market pricing.

On an optimistic note, the retreat of the tide could eventually lead to more authentic sustainability efforts: fewer unachievable proclamations, more concrete actions and realistic goals. In short, the net-zero movement will likely survive  –  just in a quieter, more meaningful way.

Please enjoy our full interview with Professor Marcin Kacperczyk and join us if you can in Brussels on 6th November. As always, we welcome your opinions and feedback.

Ciao for now,

~ Riccardo