Eighteen new investors have thrown their weight behind efforts to create a climate stewardship programme for sovereigns, in the latest sign that governments are becoming a priority for financial institutions with net zero targets.
Originally set up in 2022 by Aviva Investors, BNP Paribas Asset Management, Brandywine Global, HESTA, Nordea, Robeco and Schroders, the Collaborative Sovereign Engagement on Climate Change programme has so far focused on Australia.
Members are asking the government there for policies and guidance to address concerns about the risk climate change poses to their sovereign bonds, national economy and global financial stability. Requests include decarbonisation strategies and budgets, improved disclosure, and national climate adaptation plans.
IPE understands that members of the programme, which is coordinated by the Principles for Responsible Investment (PRI), have had more than 20 meetings with different departments of the Australian government so far.
Peter van der Werf, who leads engagement at Dutch responsible investment manager Robeco, said the group was “heartened by the level of engagement to date by Australian officials across different organisations and jurisdictions”.
Today, the initiative has announced backing from a slew of new investors, bringing the group’s combined assets under management to $8trn.
New members include insurer Munich Re, pension funds LGPS Central and Rest, and the Queensland Investment Corporation. Among other big names on the list are Morgan Stanley Investment Management, IFM Investors, Insight Investment, Sumitomo Mitsui Trust Asset Management and Fidelity International.
The expansion will enable the project to step up its focus on sub-sovereign issuers in Australia, the PRI said in a statement.
The Australian pilot will be evaluated later this year, to see if it has been fruitful. There are hopes that the programme can be expanded to cover other sovereign issuers in developed and emerging markets.
Sovereign engagement has been slow-moving
Sovereign engagement has been a controversial and slow-moving area of responsible investment so far.
Up until a few years ago, most large investors did not include their government debt in carbon footprint calculations or climate targets – partly because of the limited scope for divestment and reallocation, and partly because the sustainable finance industry has chosen shareholder engagement as its main tactic for achieving change.
Some investors have also raised questions about the ethics of seeking to influence the policy decisions of elected governments.
There have been some significant milestones, however. Back in 2019, Sweden’s central bank caused a stir when it sold its holdings in sub-sovereign debt in Queensland and Western Australia on climate grounds.
In 2020, bondholders including KLP, Storebrand and BlueBay Asset Management, launched an ‘investor policy dialogue on deforestation’ in response to the widespread destruction of the Amazon rainforest under then-Brazilian president Jair Bolsonaro. The group is now also engaging with the Indonesian government, although in a 2022 report it said overall progress has been “unacceptably slow”.
An assessment of sovereigns’ climate policies, risks and green finance efforts is also due to be launched in coming months. Known as Ascor, the project is being run by investor groups and academia, and will initially provide standardised data for 25 government issuers.
Last week, IPE wrote about the challenges around managing greenwashing risk in sovereign green bonds.
Yesterday, Dutch pension funds expressed confusion about how to account for green bonds when assessing the carbon emissions of their government debt portfolios – something they have committed to report on from this year.