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Tracking Net Zero Progress

Too little, not too late

2022 will undoubtedly go down in history as a year of unprecedented climate urgency and energy security. Bold policy action was taken to tackle these challenges head-on. But can investors assume that this is enough to transition to net zero by 2050?

New temperature records, a war-induced energy crisis and bold policy action brought both climate urgency and energy security into sharp relief: With everything that happened in 2022, one question remains: How fast and how strongly can we slow down climate change? This is also of paramount importance for investors.

Uncertainty remains high

A year ago, we introduced our Fidelity Climate Rating. Our results suggested that the world is most likely to experience a "disorderly transition". Specifically, this means that action to reduce greenhouse gas emissions will be delayed and/or will differ between countries and sectors. Having assessed the latest progress in corporate action, technology and policies, we believe that the world is still on course for a disorderly transition towards net zero. However, the policy shifts catalysed by the war-induced energy crisis have the potential to dramatically speed up the progress towards net zero goals. But near-term uncertainty remains high.

What means “disorderly transition”?

We created a simplified framework for mapping the trajectories of the transition enablers (corporate action, technology and policy action) onto climate scenarios. For that we use parts of the NGFS climate scenarios, we pick proxies from other sources, such as the IEA, or use our own judgement in assessing what path for those enablers would correspond to each of the climate scenarios.

The worst climate scenario currently not expected

To simplify the mapping further, we focus on the three key quadrants in the NGFS scenario matrix, each representing two sets of climate scenarios (Chart 1). Those are:

  • Orderly Transition (low physical and transition risks)
  • Disorderly Transition (low physical and high transition risks) 
  • Hot House World (high physical and low transition risks). 

As time progresses, the range of outcomes will narrow. But, for now at least, we assume it is still possible for the world to end up pretty much anywhere on this matrix.


How does this affect investors?

In our update we explore corporate action, technology and policy action in detail and define thresholds for each tracked metric to 2050 that would correspond to the three broad scenario groups in the NGFS framework. This analysis should help investors navigate the tremendous uncertainty associated with climate change and its impact on economies, allowing them to capture shifts in probabilities of different climate scenarios in real-time.


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