Collaborative Sovereign Engagement on Climate Change – Australian Pilot

The initiative’s aim is for investors to work collaboratively to support governments to take all possible steps to mitigate climate change, in line with the Paris Agreement.

Why is this collaborative engagement needed?

Climate change poses a material threat to investor portfolios. Through sovereign engagement, global investors are seeking to reduce their exposure to risks associated with a failure to rapidly transition to a net zero global economy, including to:

• The value of sovereign debt investments;
• The continued competitiveness of national economies and investee companies; and
• Systemic risks through exposure to the global economy.

It is consistent with investors’ fiduciary duty to encourage and support strong climate action from policymakers, to ensure a just and orderly transition to net zero can be accomplished. Governments have a pivotal role to play, including by creating an enabling environment for the private sector. Through public expenditure, policy and regulation, policymakers can set norms and incentives that will help transition whole economies to net zero. Additionally, at an estimated US$60 trillion, sovereign debt accounts for a large share of global assets under management. It is essential that investors address climate risks associated with this asset class to achieve their net zero commitments.

Creating opportunities for dialogue between investors and governments is mutually beneficial. It enables sovereigns to articulate their approach to managing sustainability risks, investors to voice support for action, and both sides to gain a deeper and more common understanding of those risks, thus helping to inform investment research. A growing number of investors now explicitly factor in climate performance of sovereigns as part of their investment decisions.

Through collaboration and co-ordination, the initiative aims to unify and amplify the messaging of global investor sovereign engagement.

Why start with Australia?

The investor group identified major sovereign issuers as the area where collaborative engagement could add the greatest impact, given their significant contribution to the risks investors face and limited existing opportunities for individual investor engagement.

The investor group identified an opportunity to support climate policy action at a critical juncture in Australia, following the introduction of the Climate Change Act and other major reforms.

This sovereign engagement with Australian governments will act as a pilot for a potentially wider programme in the future, covering other sovereign issuers.

Investor Working Group

Pilot engagement is now underway with sovereign and other relevant entities in the Australian system. To support the expansion of engagement activities the PRI and the Initiative’s Advisory Committee has agreed to establish an Investor Working Group.

Applications for PRI signatories to join the Investor Working Group are now open through PRI Collaborate platform. Investors can seek to join the Initiative as a member of three thematic sub-working groups engaging with different parts of the Australian system:

• The Federal Government
• National regulators & authorities
• Sub-sovereigns

Further information can be found in the Investor Working Group Terms of Reference on this page. For any inquiries about joining the Group can be sent to tom.arup@unpri.org.

Advisory Committee Members

TERMS OF REFERENCE