Institutional investors should start measuring, disclosing and reducing greenhouse gas emissions associated with their investments and portfolios to reduce policy, regulatory and financial risks associated with these emissions, according to a briefing developed by the United Nations Environment Programme Finance Initiative (UNEP FI) and a group of investors including Allianz, HSBC, Pax World Investments and Trillium Asset Management.
The briefing says that carbon footprinting is one of several key tools that investors should use to understand, assess and mitigate portfolio carbon risk. It also lays the foundations for the development of a new market standard to measure and report financed emissions.
Other investors involved in the briefing include, Aviva, Hermes, Eurizon Capital, Inflection Point Capital and Robeco SAM.
According to the briefing, the build-up of GHG policy is likely to accelerate in coming years as the meteorological effects of climate change continue to intensify with increasingly disruptive impacts on communities and economies.
Advocacy groups and other stakeholder groups — including investment beneficiaries — are demanding that investors start measuring and disclosing the GHG emissions embedded in their portfolios, and that they take actions to reduce them over time.
Gianluca Manca, head of sustainability at Eurizon Capital and co-chair of the UNEP FI Asset Management Working Group, says companies’ carbon intensity and climate risk exposure is already publically available. But unless there’s a similar transparency among investors, it’s hard to tell if companies’ environmental performance is helping move toward a low-carbon economy.
The trend towards mandatory disclosure on climate change and other environmental, social and governance (ESG) factors by companies suggests that, from an investor perspective, GHG emissions increasingly must be treated as a source of financial risk that must be better understood, measured, communicated and mitigated.
GHG emissions represent a material risk for companies and their investors, says Matthew Patsky, CEO of Trillium Asset Management.
The briefing says that GHG emissions can lead to financial risks that are regulatory or reputational in nature.
A “dual approach” — monitoring the carbon performance of the companies in a portfolio and the portfolios themselves — can help investors manage carbon risks, compare their own carbon footprint to other firms, and communicate GHG emissions associated with investments, says Peter Lambert, CEO of Local Government Super (LGS).
Corporate non-financial reporting by European companies is not transparent or adequate enough for investors, according to a survey published earlier this week by the European Sustainable Investment Forum and the Association of Chartered Certified Accountants.
Last month Pax World Management, investment adviser to Pax World Funds, completed a carbon benchmarking analysis of its five largest equity funds, the first phase in its effort to reduce the carbon intensity of all its portfolios over time. Also in June, 22 US investment firms with about $240 billion in assets under management signed the Climate Declaration, calling upon federal policymakers to address climate change as an economic opportunity.
Photo Credit: Allianz
