European asset owners are coming together for a project aimed at developing a common understanding of what it means for portfolios to be aligned with the climate change goals agreed at a UN-convened gathering in Paris in December 2015.
The project was launched by the Institutional Investors Group on Climate Change (IIGCC) and is being steered by a committee initially comprising Nordic and UK pension investors: AP2, Brunel Pension Partnership, Church of England Pensions Board, LGPS Central, PKA and TPT Retirement Solutions.
Aligning with the Paris Agreement has become a relatively established part of the narrative about finance and climate change, but the IIGCC said the concept remained poorly defined despite a “growing body of evidence in specific areas”.
“Moreover, the different potential approaches and methodologies that can be used to support alignment of portfolios are not well understood by investors, nor fully tested in the context of different asset classes and sectors,” it added.
In addition to identifying working definitions for key concepts, the project aims to identify different approaches and methods relevant to the objectives of aligning portfolios to the Paris Agreement.
“There are emerging tools for some asset classes but there is not yet an agreed definition of what being aligned to ‘below 2°C’ or ‘net zero by 2050’ means for a pension fund”
Adam Matthews, Church of England Pensions Board
The Church of England Pensions Board is co-chairing the IIGCC initiative, and Adam Matthews, its director of ethics and engagement, said the pension fund wanted to be able “to demonstrate transparently that it had delivered on its commitment to be aligned to the Paris Agreement”.
“However, we need to be honest,” he added. “The lack of consensus on frameworks and methodologies means that its simply not yet possible to make such statements when investing across multiple asset classes.
“There are emerging tools for some asset classes but there is not yet an agreed definition of what being aligned to ‘below 2°C’ or ‘net zero by 2050’ means for a pension fund.”
Faith Ward, chief responsible investment officer at the £30bn (€35) Brunel Pension Partnership, said the project would help the local authority pension pool move ahead “in a fully informed and effective way” with developing a comprehensive approach to managing climate risk across all its portfolios.
At a UN-convened climate conference in Paris in December 2015, 195 countries agreed a long-term goal of keeping global warming to well below 2°C above pre-industrial levels and to pursue efforts to limit the increase to 1.5°C.
The plans set out by individual countries so far would lead to warming well above either of those targets, according to estimates, although recommendations for a 2050 net-zero emissions target issued to the UK government this week have been hailed as “a new dawn for climate change action” by the Confederation of British Industry.