The International Organisation for Standardisation (ISO) has launched the world’s first standard for investors’ climate transition plans.
Published today, ISO 32212 outlines how financial institutions should assess climate risks, opportunities and exposures, as well as how to set targets and measure progress.
The standard also includes requirements and suggestions for integrating transition planning into financing decisions and engagement strategies, and how to communicate internally and externally.
“It provides practical guidance for banks, insurers, asset managers, asset owners and other financial institutions on how to establish robust governance, policies, systems and controls for effective transition planning to drive their financing decisions – that is, their loan books, investment portfolios, or underwriting activities,” said the British Standards Organisation, which led the development of the framework.
“It is intended to strengthen trust, consistency and accountability across the global financial system.”ISO 32212 is based on existing guidance from the Transition Plan Taskforce, the Glasgow Financial Alliance for Net Zero, the OECD and the Institutional Investor Group on Climate Change.
It codifies the best practices identified by each of those initiatives into a formal standard, which has been signed off by the majority of its 170 national standard-setter members, and can be used as the basis for third-party verification.
The Principles for Responsible Investment, the International Monetary Fund and the Network for Greening the Financial System all provided input into the process, too.
Last week, Colin Tissen, the sustainability lead mandate manager at PGGM Investments, suggested that financial institutions’ transition plans should include policy advocacy and impact investments.
“If we want to reduce systemic climate risk, we need to move beyond a sole focus on financed emissions and portfolio alignment,” he wrote on LinkedIn.
“Asset owners and their managers should put more resources into policy advocacy and impact investing.”
He also wrote that investors “need more understanding, not more frameworks”. This is particularly the case, he suggested, when it came to the climate plans of portfolio companies.
“Portfolio managers ultimately use transition plans to make decisions,” wrote Tissen.
“But to do that well, they need to understand four things: Climate and nature risks; How these risks translate into economic impacts; How those impacts affect portfolios; How to act on this in practice.”
Too often, he continued, investors simply assess companies’ transition plans using a “checklist”, without sufficiently understanding the underlying risks and impacts to their portfolios and the wider economy.
“If we want transition plans to be decision-useful, we need to invest more in education and expertise,” concluded Tissen.
