Investor focus on climate change

6 August 2020

Investor focus on climate change

As we have reported previously, a new set of climate ratings has been launched by CDP which seeks to help investors to understand which global warming scenarios their portfolios are aligned with. The tool uses data from 4,000 global companies based on targets to cut all GHG emissions in a company’s value chain. Now, Europe’s largest asset manager Amundi has become the first to use CDP’s temperature ratings to grow its ESG research capabilities. Different sections of its fund portfolio have been scored and a temperature rating assigned. This temperature rating means that emissions attributable to the fund are in line with that particular global temperature rise. A rating of 2.6 degrees, for example, is aligned with a global warming scenario of 2.6 degrees, which exceeds the “well below 2 degrees” scenario committed to as part of the Paris Agreement. See more about the initiative here.

This temperature rating comes at a time when there is an increasing shift of investor focus toward bringing their portfolios in line with global warming reduction targets. An investor group managing more than $16 trillion has recently launched the world’s first step-by-step plan to help pension funds and others align their portfolios with the Paris Agreement. Whilst a number of initiatives exist to help investors better manage climate-related risks, the so-called Net Zero Investment Framework is said to be the first to give investors practical guidance on how to both decarbonise portfolios and boost investments in solutions to climate change. The initiative was set up by the Institutional Investors Group on Climate Change (IIGCC) and was developed with input from 70 global investors, including PIMCO and APG. The plan sets targets at the portfolio and asset class level and also addresses asset allocation, engagement and lobbying. The first phase of the framework is now out for consultation – read more about the initiative here and here.

This shift of investor focus is also putting pressure on banks and other financial organisations to disclose on the impacts of their portfolios. Bank of America has recently announced that it will disclose climate impacts of its lending and investments having joined the growing number of financial institutions backing the Partnership for Carbon Accounting Financials (PCAF). Following Citigroup, Amalgamated Bank and Morgan Stanley, the Bank joins 70 financial institutions responsible for $9 trillion of assets worldwide. The initiative binds members to disclosing the climate impact of their portfolios and to collaboratively develop a global accounting standard – for use in the financial sector – to improve portfolio transparency of greenhouse gas emissions attributed to financing activities. See more on this here and here.

The Centre for Climate-Aligned Finance is another organisation working to enhance climate-related disclosure for the financial sector. The initiative was created in June by the Rocky Mountain Institute and with founding partners of Bank of America, Goldman Sachs, JP Morgan Chase and Wells Fargo. Its aim is to help the financial sector transition the global economy towards a net-zero carbon future and plans to convene leaders from carbon-intensive industries, their customers and financial institutions to establish climate alignment agreements. RMI said “Evolving from a patchwork of efforts to improve the sustainability performance of major financial institutions, climate alignment offers an integrated approach and comprehensive decision framework that encompasses scaling up green investment, scaling back fossil fuel investment, and measuring and disclosing progress”. The centre’s work will shape climate agreement initiatives for high-emitting industries and will be based in part on the Poseidon Principles, which the non-profit helped create for the shipping sector. Read more about the initiative here and here.

At the moment it is difficult to keep up with progress in this sector. Since the introduction of the Task Force on Climate-related Financial Disclosure (“TCFD”) in 2017, investors and financiers are taking more and more notice of climate change, and are increasingly looking to their investments to tell them about any climate-related risks and opportunities within their organisation. If you would like to read more about TCFD and how the recommended reporting disclosures could apply to your business, see our whitepaper or coffee-break briefing here: