The Collaborative Sovereign Engagement on Climate Change is a pilot PRI-led investor initiative to support governments to act on climate change.

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 and keeping average global warming to 1.5°C.

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 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 international 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. This helps inform government responses to climate challenges and investment decisions. A growing number of investors now explicitly factor in sovereign climate performance to their investment decisions.

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

Engagement aims

Through mutually beneficial engagement, investors are seeking that sovereigns:

  • Close the gap between current action and a Paris-aligned emissions reduction trajectory;
  • Establish a detailed, credible and economy-wide net zero transition plan with supporting policy mechanisms, budget expenditure and investment structures;
  • Build greater climate adaptation and resilience across the economy and community to avoid worsening disruption and damage from physical risks; and
  • Improve disclosure of sovereign exposure to climate risks and opportunities consistent with international standards.

Investor Working Group

Pilot engagement is now underway with sovereign and other relevant entities. To lead these engagement activities the PRI and the Initiative’s Advisory Committee has established an Investor Working Group made up of Participating Investors from across the world.

Investors engage through the Initiative as a member of three thematic sub-groups focused on different parts of sovereign systems:

  • National governments
  • National regulators and authorities
  • Sub-sovereigns

Further information can be found in the Investor Working Group Terms of Reference on this page. The Investor Working Group is not currently open to new participants to join. To register future interest in joining, or for any other inquiries, please contact Tom Arup, PRI Lead of Sovereign Engagement: [email protected].

Advisory Committee Members

Name

Organisation

Thomas Dillon

Aviva Investors

Malika Takhtayeva

BNP Paribas Asset Management

Reina Berlien

Brandywine Global Investment Management, LLC

Akaash Sachdeva

HESTA

Magdalena Kettis

Nordea Asset Management

Peter van der Werf

Robeco

Stuart Dear

Schroders

Erwin Jackson (Observer)

IGCC

The Australian Pilot

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

Participating Investors have 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. Australia traditionally performs poorly on climate and environmental measures in sovereign risk ratings against peer nations.

As part of this pilot there are 25 international investors engaging with the Australian system who are collective responsible for $8 trillion in assets under management. These investors include:

Achmea

Brown Advisory

HESTA

Morgan Stanley Investment Management

QIC

Ardea Investment Management

Candriam

IFM Investors

Munich Re

Rest

Aviva Investors

Colchester Global Investors

Insight Investment

Neuberger Berman

Robeco

BNP Paribas Asset Management

Fidelity International

Jupiter Asset Management

Nordea Asset Management

Schroders

Brandywine Global Investment Management

First Sentier Investors

LGPS Central

Pendal Group

Sumitomo Mitsui Trust Asset Management

Sovereign engagement with Australian governments will act as a pilot for a potentially wider programme, covering other sovereign issuers. PRI and participating investors will review the progress of the Australian engagement in mid-2024.

 

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