Friends of the Earth co-ordinator Cat Turner sets out the sources of climate guidance for investment firms wanting to ensure their clients are properly positioned for the future
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A fortnight ago I took a brief look at why the finance sector should be ensuring it’s well up-to-speed on sustainability issues, including, especially, climate change.
In the UK, this process is well under way: the UK Government’s ‘Carbon Plan’ sets out its long-term plans to meet mandatory carbon-cutting targets under the Climate Change Act 2008, which as an EU member state it has to do.
The Carbon Plan lists the key actions (on a sector by sector basis) that the UK government departments (and the devolved administrations) are taking, during this decade and going into the 2020s, as well as the many opportunities for private sector involvement.
The plan gets updated annually, and you can find it here: https://www.gov.uk/government/publications/the-carbon-plan-reducing-greenhouse-gas-emissions--2
It would be good to see our own government being so publicly committed to de-carbonising – the island has a long and depressing history of being the ‘bad guy’ (smuggling, tax evasion and now what could be seen as an irresponsible lack of progress on carbon commitments), but we’ve the potential to become a hub for good practice and a flourishing clean economy.
And, even better, we’ve the chance to find new employment avenues for our financial services industry.
Why’s this? Well, the opportunities that clean business in the UK, here and elsewhere bring, include the possibility of new jobs, tax revenues and investor potential – including through Isle of Man administered arrangements; and as investors get to grips with the impacts of climate change on the value of their investments, several trends have emerged.
1. Environmental/climate change investment strategies
Even in mainstream (that is, non-environmental) funds, investors are checking that their portfolios take sufficient account of climate change issues. This includes: cutting the climate change risks in their portfolios by pressurising fund managers to put in place their own climate change strategies; the development of guidelines and principles to help investors address climate change issues in their portfolios (I’ve looked at these below); and investors putting pressure on investee companies to address climate change issues themselves.
2. Environmental/climate change investment funds
There’s an absolute slew of newly-developed investment products related to climate change. London is home to a good many of these, and a few are also already being managed or administered from the island – but with the right skills, we can attract more.
3. Reducing operational climate change impacts
Investors are also trying to cut their own climate change impacts, and lots are in any case subject to climate change legislation as a business in their own right. Carbon accounting and reporting, and new procurement and practical ways of doing things, again offer scope for new business development.
4. Climate change issues relevant to insurers, and specific obligations on pension fund trustees
These mostly require trustees to disclose their environmental, social and ethical policies in their investment decision-making processes
ShareAction in the UK has a teriffic ‘Green Light Campaign’ aimed at empowering individuals like you and me to hold their pension fund trustees to account in protecting the planet – it’s worth checking out, whether for altrustic reasons or selfish ones. After all you don’t want your own pension pot to become worthless through too much exposure to fossil fuels!
In terms of guidance on climate change strategies for investors, there’s quite an array.
They include:
– the UN Principles of Responsible Investment, which has been signed up to by many major organisations.
– the Financial Reporting Council’s UK Stewardship Code.
– the Ceres/INCR climate risk action plan.
– the Institutional Investors’ Group on Climate Change guides on climate change for private equity and property investors.
– the US-oriented ‘Carbon Principles’.
– the European Investment Bank’s Emissions Performance Standard.
– for lenders, the Equator Principles.
– the Climate Disclosure Standards Board’s investor engagement programme.
– the British Venture Capital Association’s “Responsible Investment: A guide for private equity and venture capital firms’. This covers general environmental, social and governance issues – not just climate change.
It would be redundant, and dull, to go through all of these in detail, but it’s worth taking a brief look at one set to see what types of issues are involved.
The UN Principles of Responsible Investment (PRI) are a set of global voluntary guidelines for institutional investors on integrating environmental, social and corporate governance (ESG) issues into their investment decisions.
The PRI don’t expressly refer to climate change.
However, as climate change is probably the current most important environmental issue there is, there’s no doubt that signatories to the PRI must consider it – as well as other environmental issues. The PRI has more than 1,100 signatories, comprising asset owners, investment managers and professional service partners.
It demands that signatories:
– Incorporate ESG issues into their investment analysis and decision-making processes, and into their ownership policies and practice;
– Encourage the companies they invest in to disclose ESG issues;
– Promote the PRI within the investment industry and work together to enhance their effectiveness;
– Report on their own progress in implementing the PRI.
These, and the other sets of guidance I’ve listed, make sense not just from an altruistic perspective. They also help protect the investors’ money, by cutting the risk that they’ll be holding ‘stranded assets’ – investments that become devalued or worthless as regulations come into force that prevent industrial reliance on fossil fuels and the like.
The tide’s turning, and we need to turn with it!