Leading International Asset Owners Launch Climate Change Investment Initiative

Thirteen of the leading international asset owners have announced a major initiative to ensure that investment decisions are impacted by climate concerns.

The leading international asset owners and five asset managers with over £2 trillion under management launched the Transition Pathway Initiative (TPI) today to better understand how the transition to a low-carbon economy affects their investments. The TPI will assess how individual companies are positioning themselves for the transition to a low-carbon economy through a public, transparent online tool. The heads of funds involved launched the Initiative this morning at the opening of the stock market at the London Stock Exchange.

The Initiative has been led by the Church of England’s National Investing Bodies and the Environment Agency Pension Fund in partnership with the Grantham Research Institute at the London School of Economics. Data has been provided by FTSE Russell.

Preliminary assessments released today include the oil and gas and electricity utilities sectors. As part of a phased rollout, management quality and carbon performance assessments of additional sectors and individual companies will follow in the coming months. The tool has been designed to support the requirements of the Task Force on Climate-Related Financial Disclosures (TCFD), individually profiling future projected emissions against the two-degree target and current public policy commitments.

Preliminary assessments have already highlighted key findings, including:

• Almost all companies assessed are at least acknowledging climate change as a business issue (39 out of 40). However, few companies are at the level of strategic assessment (level 4), meaning most can improve.
• Electricity utilities are marginally more advanced than oil and gas producers.
• The typical company is building capacity (15 out of 40 are at level 2), meaning it explicitly recognises climate change as a significant issue for the business, has a policy commitment to action, has set some form of energy or greenhouse gas emissions target, and discloses its operational greenhouse gas emissions
• The majority of companies also have board oversight of the climate change policy (on level 3; 28/40), and incorporate ESG issues into executive remuneration (on level 4; 34/40).
• The most common factors hindering progress are not having set quantitative targets for reducing operational greenhouse gas emissions (26/40 have not), and not having had operational emissions data verified (22/40 have not).

Adam Matthews, Co-Chair of the Initiative and Head of Engagement for the Church Commissioners and Church of England Pensions Board, said “The Transition Pathway Initiative is a tipping point for the market.

“ The Initiative will identify companies that are aligned with the transition to the low-carbon economy and those most exposed to climate transition risk.

“There can be no doubt about the seriousness with which asset owners are taking account of this risks and it will be a key feature in the discussions we will be having with companies over the coming years.”

Emma Howard Boyd, Chair of the Environment Agency said “Businesses should be able explain to investors how they plan to manage climate change risks, invest and innovate on the way to the zero-carbon economy of the future. With the launch of the Transition Pathway Initiative, asset owners from around the world are sending a strong signal that portfolios will align in the future with companies that are taking the transition to a low carbon economy seriously.”

Professor Simon Dietz, Co-Director of the Grantham Research Institute at the London School of Economics, said “The TPI brings transition risk to life for asset owners and asset managers. As well as allowing investors to objectively compare the progress of companies towards a low-carbon economy, the tool highlights the work governments still need to do to align public policy to the two-degree target agreed in Paris.”

Mark Makepeace, CEO of FTSE Russell, said “The launch of the TPI highlights the growing momentum among asset owners to consider the economic implications of the transition towards a low-carbon economy into their stewardship and investment processes. FTSE Russell has long been a pioneer in ESG and sustainable investing and we are delighted to have been chosen by the TPI as the data and analytics partner for this exciting initiative.”

Frédéric Janbon, CEO of BNP Paribas Investment Partners, said “BNP Paribas Investment Partners is very pleased to be among the asset managers that actively support the Transition Pathway Initiative. It is important for asset managers to partner with asset owners, as by doing so we are able to send a unified message to companies regarding our expectations of them as they position themselves for the transition to a low-carbon economy. It also sends a clear signal to the wider world that we are actively engaging with companies to help them to work towards greater action, as well as disclosure of transition risks, in order that their shareholders can make fully informed investment decisions.”

The online tool developed by the TPI – available at transitionpathwayinitiative.org – tracks a company’s management quality and carbon performance. Management quality assessments will use data from FTSE Russell to assign companies to one of five levels, ranging from level 0 (no recognition of climate change as a significant issue) to level 4 (climate change deeply integrated into a company’s business practices). Performance assessments will compare individual companies with internationally agreed benchmarks made as part of the Paris Agreement. These benchmark emissions pathways will be sector-specific.