How are indices and data-driven insights helping market participants navigate the evolving energy transition landscape? S&P DJI’s Maya Beyhan and S&P Global Sustainable1’s Patil Mesrobian join the CFA Institute’s Jeanette Tawk for a closer look at the expanding toolkit for assessing potential energy transition risks and opportunities.
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Jeanette Tawk:
Hello, I am Jeanette Tawk, Director of Partnerships for Middle East and North Africa at CFA Institute. Joining me today, Maya Beyhan, Global Head of Sustainability, Index Investment Strategy at S&P Dow Jones Indices, and Patil Mesrobian, Sustainability Solutions Director at S&P Global Sustainable1, to take a deep dive into the energy transition and the importance of reporting and data-driven insights. Patil, Maya, so great to have you here today.
Maya, to begin, could you please elaborate on the importance of the energy transition from an indexing standpoint and its impact on the behavior of market participants?
Maya Beyhan:
Absolutely. S&P Dow Jones Indices, we are an independent index provider. We design and launch indices that track the performance of the market or the segments of the market, including the sustainability space.
What we have noticed is that there has been a shift in the narrative in the recent years toward energy transitions. A lot of conversations are revolving around that topic, and what we also see is that because it's such a complex topic, there will likely not be a single solution, but it will rather be a combination of different solutions to achieve the energy transition. As such, what we have also noticed is that market participants are adopting a more holistic approach when it comes to incorporating energy transition into their decision-making. So, they are looking across asset classes, from equities to fixed income to commodities as well. One example would be the carbon credit futures, where basically carbon is treated like a commodity. So, a more holistic approach across asset classes is one main big trend that we have been noticing, and, as such, this informs our index construction.
Jeanette Tawk:
Thank you.
Patil, can you please explain the significance of transparent reporting and data-driven insights within the context of energy transition?
Patil Mesrobian:
Absolutely. Transparent reporting and data-driven insights are crucial for organizations to show their commitment to the climate transition, and it ensures accountability, it builds trust among the stakeholders and it also validates their progress toward their climate goals. Robust and reliable data is fundamental and foundational to a robust climate strategy. It also aligns with stakeholder expectations, and it enables the companies to identify pathways for decarbonization.
On the other hand, transparent reporting demonstrates the company's commitment to their net-zero commitments and validates the progress. It also enables the companies to align with regulatory requirements, attract a stable investment and also enhance the company's reputation in the transitioning economy.
Jeanette Tawk:
Thank you.
Maya, to talk about the emerging trends, what are the trends that you are observing within the global energy transition landscape?
Maya Beyhan:
That's a really good question. So, when we look at it globally, I would say one asset class stands out, and that's fixed income. It's really at the epicenter of this conversation. So, types of asset classes, like sustainability-linked bonds or green bonds, we have been observing an increasing demand for those types of things, and when you think about it, it's actually not so surprising, because a lot of companies that are involved with energy transition or sustainability-related projects, they need funding. So, in that ecosystem, of course, it makes sense that the demand for types of bonds related to those types of projects are gaining traction. So, I would say one trend is increasing demand for sustainability-linked bonds, green bonds, and again, in this Middle East region, of course, you have green sukuk, so, those types of things.
Another trend we have been observing, as I mentioned earlier, is green real estate. Again, it's very intuitive, it makes perfect sense. It's very much connected to energy transition.
And, also artificial intelligence as well, as per my example earlier about smart batteries.
And then, another trend we are observing is in the area of new metrics, and this is to Patil's earlier point. As the data gets better, right, as such, we can also construct better metrics, more accurate metrics, and we can construct our indices utilizing those metrics. Patil already mentioned a few, like, for example, Net-Zero Commitments Tracker is one of the new datasets that S&P Global Sustainability1 launched. We can use that in our index construction, or things like financial impact or physical climate risk, where you actually put a dollar amount into the risk exposure that you get from that physical climate risk, which is very geography dependent. So, new metrics.
One last thing I would mention on that is we have also been observing an increasing demand for the "S" of ESG, so, the social criteria under the "S" pillar. Specifically, two criteria really stand out. One is human capital development, and the second is talent attraction and retention. We have been observing increasing demand for those two criteria. Those are the main trends that stand out.
Jeanette Tawk:
Patil, for a deeper dive, how do you see the trends mentioned by Maya, how do they manifest locally within the Middle East?
Patil Mesrobian:
Thank you for the question. Sustainability and climate transition is also becoming a strategic priority for the region, particularly for the UAE and the Kingdom of Saudi Arabia, setting ambitious net-zero targets, such as the UAE's Net Zero 2050 Strategic Initiative, the Saudi Vision 2030 and the Saudi Green Initiative. And we're seeing the local frameworks evolving to meet those initiatives and support those initiatives and guide the companies on what to quantify, what to disclose, and what to take into account into their strategies, risk management, and be able to identify the opportunities in this transitioning economy.
We're also seeing a rise in renewable energy projects by those nations. This is to diversify the energy sources and also reduce reliance on fossil fuels.
And, last but not least, as Maya said, there is an increase in green bond issuances to finance those renewable energy projects and support the region in attracting capital and those investors with a sustainability lens to sustain the economy and the sustainability in the region.
Jeanette Tawk:
Patil, Maya, thank you for the valuable conversation and insights.
