If investors and governments do not ramp up their actions on climate change now, then they risk a more disruptive transition in future as governments will be compelled to impose forceful measures, which could trigger a phase of market volatility.

This was the PRI’s announcement during PRI in Person 2018 in San Francisco, the world’s largest responsible investment conference. 

The inevitable policy response to climate change: Act now is the first detailed framework prepared for the PRI that examines an inevitable, rapid and forceful climate policy response to climate change that sets out the key issues for institutional investors on which to take action and implement processes to build resilience across their investment portfolios. The new inevitable policy response (IPR) framework considers a range of impacts on investors including asset allocation, engagement, their agents and service providers, governance and the management of stranded assets in the lead up to and aftermath of an IPR.

The inevitable policy response (wide)

“There is a lot of action on climate change but it’s not nearly enough to meet the goals of the Paris Agreement,” said PRI CEO Fiona Reynolds. “If investors do not take much stronger action now on climate change, then we see an inevitable policy response on the part of governments that could create volatility across the capital markets. And, the longer it takes for action to emerge, the more disruptive it will be.”

“The longer it takes for action to emerge, the more disruptive it will be.”

Fiona Reynolds, PRI CEO

Mark Fulton, founding partner of Energy Transition Advisors (ETA), added: “The key forces that drive the climate transition are policy, low carbon technology deployment and investor actions to work with companies to align with a well below 2o C outcome. To the degree that technology and investor actions are not on track as evidenced by the IEA NPS, forceful policy action to close that gap will become inevitable due to economic and societal forces.”

“Forceful policy action to close the gap will become inevitable due to economic and societal forces.”

Mark Fulton, Energy Transition Advisors (ETA)

In order to help avoid a such delayed outcome, the PRI believes that investors should be aligning their activities with the Paris Agreementto limit global warming to well below 2 degrees and that they should review their governance, engagement,  service providers and strategic asset allocation/portfolio construction.

“In doing this work we can also give investors a clear scenario based on a 2025-2030 announcement and implementation phase to assess their financial exposure to high and low carbon assets so they can take swift action to protect their returns,” Reynolds concluded. “The analysis that we have commissioned will be integrated into all of the PRI’s relevant investment guides and tools – to set out clearly what alignment with the Paris Agreement means for signatories.”

Read the report

For more information contact:

Joy Frascinella

Head of PR

The Principles for Responsible Investment (PRI)

+44 (0) 203 714 3143

[email protected]