What is the solution?
Develop an investment policy for your pension fund and reserves that aligns with your mission and will help drive the transition to a sustainable low-carbon economy (including a no-fossil fuel investment policy). Then select an asset manager (a bank or specialist) that can implement that policy.
Why is it important?
There are two reasons to look at investments with respect to climate change: to avoid losing money and to encourage decarbonisation. The value of fossil fuel companies will drop dramatically when governments announce the robust policies that are inevitably going to be needed to force a reduction of CO2 emissions in the future. By divesting from those shareholdings early, investors are not only reducing the risk of significant financial losses, but also depriving those companies of easy, cheap capital to expand their operations. This is because, when a large proportion of investors shun a sector, companies in that sector will have to issue any new shares at a lower price and will find it harder to access cheap loans.
Key solutions
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#1 Divest high carbon-intensity investments
Develop an investment policy aligned with your mission and decarbonisation objectives (no fossil-fuel policy), then find an asset manager that can implement it.
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Lobby carbon-intense companies
An alternative to divestment can be to use share-ownership to lobby a company to decarbonise.
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#3 Choose a greener bank
Use a bank that has a no-fossil fuel investment policy or has signed up to the Principles for Responsible Investment (PRI). (3) PRI is an independent organisation that has developed six principles for responsible investment. To date, more than 5,000 banks and investment managers have signed the principles, demonstrating their commitment to responsible investment.
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#4 Delegate to a specialist asset manager
Several banks and asset managers, such as Globalance, specialise in managing the carbon intensity of investment portfolios and have products and tools to help organisations achieve their decarbonisation ambitions.
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Investment decisions need to be guided by the risk considerations of a rapidly changing natural world. Asset owners that choose to undertake forward-looking climate scenario assessments will put themselves ahead of the curve in understanding the climate-related risks and opportunities within their portfolios.
Tools and good practices
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Globalance World
A personalised digital world map that allows you to discover the impact and returns of your wealth and assess in real-time how sustainable, future-fit and profitable your investments are
Read here -
Low-carbon, high return: How to decarbonize your portfolio in 4 steps
How can you ensure that your investments are aligned to a low-carbon future? The decarbonising portfolio tells investors how to do just that
Read here - WWF climate guide to asset owners: aligning investment portfolios with the paris agreement, topline recommendations
- Swiss Pension Funds Rating, WWF, 2019
- European asset owners: climate alignment of public equity and corporate bond portfolios, WWF, 2018
- International Climate Reporting Awards
To go further
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Decarbonizing Long-Term Portfolios
An adaptable, top-down approach to addressing climate change in investment portfolios
Read here -
UN-convened Net-Zero Asset Owner Alliance
Global asset owners committed to decarbonising their investment portfolios and achieving net-zero emissions by 2050
Read here -
Taskforce on Climate-related Financial Disclosures
The Task Force consists of 31 members from across the G20, representing both preparers and users of financial disclosures
Read here - Taskforce on Nature-related Financial Disclosures
- Into the wild - Integrating nature into investment strategies, WWF France and AXA recommendations
- Responsible business conduct for institutional investors, OECD
Banks
Sources
(1) Florian Eglia, David Schärer and Bjarne Steffen. 2022. Determinants of fossil fuel divestment in European pension funds, Ecological Economics 191. Read here.
(2) Tim Quinson. 2021. Cost of Capital Spikes for Fossil-Fuel Producers, Bloomberg. Read here.
(3) PRI – list of the 290 banks that have signed the Principles for Responsible Banking. Read here.
(4) Retraite additionnelle de la fonction publique. 2021. ERAFP is strengthening its engagement in the fight against climate change by making ambitious decarbonisation commitments and intensifying its shareholder dialogue. Read here.
(5) International Climate Reporting Awards website. Visit here.
(6) Environment Agency Pension Fund, Climate change. Read here.
(7) AXA and climate change. Read here.
(8) Daniel Boffey. 2021. One of world’s biggest pension funds to stop investing in fossil fuels, The Guardian. Read here.
(9) Globalance. Certification as B Corporation: Shape the future. Read here.
(10) WWF Switzerland. 2021. Sustainability in the Swiss Retail Banking Sector: WWF Rating of the Swiss Retail Banking Sector 2020/2021. Read here.
(11) WWF. 2018. How well are European asset owners’ portfolios aligned with the Paris Agreement’s climate goals? Read here.
Cover photo © Piggybank/Unsplash.