Institutional investors’ responsibility to manage and protect their beneficiaries’ assets must include considering the impacts of climate change.
In addition, if we are all to avoid dangerous climate change outcomes, investors will play a crucial part in contributing the trillions of dollars needed to support the transition to a lower carbon economy.
Many investors are already taking action to manage the risks and capture the opportunities that climate change presents:
- reducing exposure to high-carbon assets;
- engaging with companies and policy makers;
- integrating climate change into investment strategies;
- undertaking scenario analysis;
- improving disclosure and transparency;
- allocating capital to new, low-carbon, climate-resilient opportunities.
Despite this momentum, there is a need for these actions to be more widely integrated into mainstream investment processes to ensure that investment portfolios are resilient to the financial implications of climate change – now, and in the future.
This guide highlights the investment strategies available to investors in their efforts to align their investment portfolios with a lower carbon, more climate-resilient economy. It is designed for investors that have developed (or are in the process of building) their climate-related policies and processes, and are moving to implement them (particularly, the implications for investment allocations).
This guide focuses on three main areas for investor action:
- Low-carbon, climate-aligned investment opportunities
- Integrating climate-related risks and opportunities into investment processes
- Phasing out investments in thermal coal
These actions can be part of investors’ commitment to the Investor Agenda, and to their disclosure in alignment with the Financial Stability Board’s Task Force on Climate-related Financial Disclosure (TCFD) recommendations.
Allocating capital to low-carbon opportunities is not without its challenges. In particular, concerns have been expressed around scale, access, availability of opportunities and regulatory uncertainty6. In addition, integration into core mandates can be challenging for investors to evaluate, as the data and metrics are still evolving across asset classes. Nevertheless, as this guide highlights, there are some straightforward actions that investors can take today to invest into the low-carbon economy.
Embedding low-carbon investments into policies, processes and disclosure frameworks:
Asset owner actions
- Add to investment committee agenda to identify and research opportunities.
- Ask consultants to identify and research opportunities.
- Ask fund managers what opportunities are available.
- Encourage fund manager integration efforts.
Investment manager actions
- Consider developing new funds and products.
- Bolster integration into core processes.
- Engage with clients and potential investors on demand and needs.
- Build internal expertise.
- Bolster reporting metrics.