Legal & General Investment Management (LGIM) has completed the co-development of a bespoke modelling framework to measure climate risk in investors’ portfolios and their alignment with Paris Agreement objectives.
From the first quarter of next year it will have a climate solution capability for institutional investors that will deploy the new modelling tools, “to measure the climate alignment of client assets and to design and implement ‘Pathways to Paris’ solutions,” it said.
By the first quarter of 2021 the framework will also power a dashboard that will be available to portfolio managers and analysts within LGIM.
The modelling framework, dubbed Destination@Risk, was developed over a period of 18 months in collaboration with Baringa Partners, a specialist in climate and physical risk analysis.
It was first used to evaluate the climate risk and alignment of L&G’s own balance sheet assets and has also been used to analyse around 2,000 companies globally. LGIM said the analysis confirmed that “climate presents a first order material risk for long-term investors”. It found that the majority of the companies analysed were not to be aligned with Paris accord objectives.
Speaking during a webinar yesterday, Nick Stansbury, head of commodity research at LGIM, said that by building the new modelling framework with Baringa the asset manager had “cracked [the] incredibly challenging problem” of knowing how, in practice, one can properly evaluate climate risk and Paris-alignment in a robust and transparent way for investors with large diversified long-term portfolios.
Sonja Laud, LGIM’s CIO, said the asset manager considered the new framework and modelling capabilities would also allow investors “to make strategic asset allocation choices that will have a real impact on the type of energy system that is built”.
With regard to the new investment solutions LGIM was aiming to offer on the back of the new framework, Laud said the intention was for these to cover both active and passive implementation.
PIMCO launches climate bond fund
PIMCO has launched a bond fund dedicated to investments in a range of instruments linked to fighting climate change.
PIMCO said the GIS Climate Bond Fund invests in both labeled and unlabeled green bonds, as well as bonds from issuers demonstrating “innovative approaches to environmental sustainability”.
The fixed income manager said this would offer investors an expanded opportunity set beyond traditional green bond exposures, it added.
“We are focused on identifying the increasing number of bond issuers committed to climate action and financing climate solution projects,” said Scott Mather, managing director and PIMCO’s CIO of U.S. core strategies.
“Active management, combined with rigorous analysis by our credit analysts, will help us find the likely winners of the transition to a net zero carbon economy.”