|
|
Asset owners’ fiduciary duty requires them to consider, evaluate, and make decisions based on what supports the best interests of their stakeholders. This is an individual responsibility since each asset owner represents different assets and that which is in the best interests of those asset is as varied as the assets themselves.
Given asset owner specificities, what could be gained from working collaboratively? A fair question, yet one that overlooks the complexity of systemic risks, such as those posed by climate change. Just in the first half of 2023, parts of South Asia experienced some of the most intense heatwaves in history (which climate change rendered 30 times more likely to occur); the world’s ocean surface hit an all-time high at 21.1C, carrying the risk of marine heatwaves with devastating effects on marine wildlife and coast-protecting coral reefs; and scientists predicted a 66% likelihood that the world will exceed the annual average of 1.5C of warming in the next 5 years.
For long-term institutional investors, these adverse climate impacts pose an existential threat. In fact, the insurance industry is already facing material consequences with actors withdrawing from areas with high catastrophe exposure. Insurers have, for example, withdrawn from the Californian home insurance market leaving some homeowners without coverage.
To exercise their freedom to invest responsibly, asset owners need to have the data, the tools, and the methodologies to properly assess climate risk and to integrate it into their individual investment decision-making. Adding climate considerations into every part of an asset owner’s business is not always straightforward, but it is essential for what the Net-Zero Asset Owner Alliance (Alliance) sees as ‘the basics of decision-making’. So, how can asset owners address climate risk to ensure they are continuing to act on their individual and unique fiduciary responsibilities?
To build the basics of decision-making and to then operationalise them means evaluating and reducing one’s own exposure to high-emitting assets, recognising the business case for investing in climate solutions, and engaging diverse stakeholders, since addressing climate risk requires systemic change that goes beyond portfolio-allocation strategies. Optimally delivering on this requires collaboration.
To protect one’s own assets and to signal to the real economy that aligning with the Paris Agreement’s goal of limiting warming to 1.5°C is the prudent way forward, an asset owner would first seek to reduce its exposure to high-emitting assets. The Alliance members do so by individually committing to achieving net-zero greenhouse gas emissions by 2050 in their portfolios.
However, ensuring that an asset owner’s portfolio is indeed aligned with net zero—across all asset classes and all markets—is no simple feat. For example, measurement of companies’ scope 3 data remains sparse and unreliable. That’s where collaboration proves essential. As part of the Alliance, members contribute to and benefit from industry-leading decarbonisation methodologies as well as from opportunities to impactfully raise the need for comprehensive climate reporting, for example, with both corporates and policymakers....
more at UN EP FI